If you filled your gas tank last May, you paid roughly 40 percent less per gallon than you do today. For a typical household that spends $2,000–$3,000 per year on gasoline, that is $800 to $1,200 in extra annual spending — just at the pump.

But here’s the nuance most headlines skip: strip out food and energy, and prices rose just 0.2 percent in May. That’s the kind of monthly increase consistent with the Fed’s target. The inflation you’re feeling is real, but it is highly concentrated in fuel and fuel-adjacent goods, not spreading broadly across the economy — at least not yet.

The risk is that sustained high energy costs eventually raise the price of everything that requires transportation, heating, or electricity — which is essentially everything. Economists are watching for these “second-round effects” carefully in the months ahead.

Inflation reached its highest level since April 2023 in May, rising 4.2 percent over the past year — but the engine of that increase is almost entirely gasoline and energy prices driven by the ongoing Middle East conflict, not broad-based domestic inflation. Strip out food and energy, and prices rose just 0.2 percent in May, suggesting the underlying economy’s inflation picture remains substantially more manageable than the headline figure implies. The central question now is whether geopolitically-driven energy costs will spill over into wages, rents, and services broadly — and that answer depends as much on events in the Middle East as on anything the Federal Reserve can do.