Inflation Surges To 4.2%, Highest Since April 2023: Wall Street Now Bets On A Fed Hike (UPDATED)

U.S. headline inflation surged to 4.2% year-over-year in May, the highest since April 2023, driven primarily by energy price shocks from the Strait of Hormuz. Core inflation rose to 2.9%, prompting markets to price in a 96% probability of a Federal Reserve rate hike by December. Energy accounted for over 60% of monthly price increases, with gasoline up 7.0% and fuel oil up 58.9% year-over-year. Markets reacted with measured risk-on sentiment as the cooler core print offered some offset to headline pressures.