Gas prices rise again, squeezing households and lifting U.S. inflation

Consumer prices rose 4.2% in May from a year earlier, the third straight increase, as higher gasoline costs pushed inflation back to a 3-year high and tightened household budgets. National average gas prices had climbed above $4.50 when the U.S.-Iran conflict began on Feb. 28 before easing back to $3.85 a gallon, but even that retreat left fuel expensive enough to weigh on everyday spending.

The swing in gasoline matters because drivers see it immediately. Unlike rent or insurance bills that arrive monthly, fuel prices flash on street corners and highway signs, making them one of the clearest signals consumers use to judge whether inflation is easing or whether another squeeze is coming. The Labor Department’s Consumer Price Index for All Urban Consumers fell 0.4% in June on a seasonally adjusted basis, the largest one-month decrease since April 2020, after consumer prices had risen 0.5% in May. That drop reflected a pullback in gas prices, but it followed a month in which inflation was still accelerating.

The respite for households did not come out of nowhere. The U.S. Energy Information Administration said U.S. retail gasoline prices fell in 2025 for the third consecutive year, a run that helped give consumers breathing room after the price spikes that defined earlier inflation waves. That relief, however, was uneven. Bank of America Institute said higher gasoline prices were stretching household budgets most sharply for lower-income consumers, and found that the median lower-income household spent 4.2% of income on gasoline in March 2026, up from 3.9% a year earlier. That share was above 2019 levels, even if it remained well below the heights reached in 2022.

Consumer confidence has already reflected the strain. The University of Michigan’s consumer sentiment index improved to 49.5 in June from 44.8 in May, but it remained far below 60.7 in June 2025. That leaves the economy in a fragile position: lower fuel costs helped households spend more freely as inflation cooled, but gasoline’s visibility means any renewed rise can quickly change how families feel about their finances and how much they are willing to spend.