US inflation hits three-year high

**Gideon Long** (0:01)
US inflation data is out and it's not pretty.

**SPEAKER_2** (0:04)
For everyday Americans, gasoline is much higher, the price of food as a consequence has also gotten much higher. All prices are higher.

**Gideon Long** (0:12)
So is Donald Trump worried?

**Donald Trump** (0:14)
No, I love it. The numbers are right. You know what I really love?

**James Reynolds** (0:18)
I love the inflation.

**Gideon Long** (0:20)
It's World Business Report from the BBC World Service. I'm Gideon Long. We'll be diving into those figures, asking what they mean for businesses, the Federal Reserve and for you. We'll also take a look at inflation in China, and we'll hear from North American businesses on their hopes and fears for the soccer or football World Cup.
We're going to start by talking about US inflation because it's risen to its highest level in three years. Unwelcome news for homeowners with mortgages, for businesses, and many of you listening perhaps, and potentially complicating the Federal Reserve's plans for interest rate cuts as well. Inflation in the US hit 4.2% in May, and energy prices up 23.5%. This despite repeated assurances from President Donald Trump that inflation was moving lower. My colleague, Bizi Adebayo, has been taking a closer look at the numbers and what's driving them.

**Bizi Adebayo** (1:18)
During his campaign for a second term in the White House, President Donald Trump promised to end inflation and make America affordable again. In February, with inflation at 2.4%, he claimed price rises were under control.

**Donald Trump** (1:33)
Very good financial numbers, very low inflation. We brought costs way down and the numbers were surprising, except to me, they weren't surprising.

**Bizi Adebayo** (1:44)
Tonight, after three months of increases in the consumer price index, President Trump said this.

**Donald Trump** (1:50)
You know what I really love? I love the inflation.

**Bizi Adebayo** (1:53)
With inflation at a three-year high, today's report shows slowing price rises will continue to be a challenge. To understand why, it's worth taking a look. Inflation surged after the COVID-19 pandemic as economies reopened, consumers spent heavily, and global supply chains struggled to keep up. Russia's invasion of Ukraine in 2022 then pushed up energy and food costs around the world, helping drive US inflation to more than 9 percent. The Federal Reserve responded with an aggressive series of interest rate hikes.
Those higher borrowing costs gradually culled demand, and inflation fell steadily through 2023 and 2024 That progress fueled hopes that the central bank would be able to lower borrowing costs and declare victory over the inflation shock that followed the pandemic. This latest rise in inflation reflects a mix of factors. There are some positive signs beneath the headline CPI rate. Underlying inflation outside of fuel costs was more subdued, suggesting price pressures are yet to hit the wider economy.
But today's data are likely to focus attention once again on the Federal Reserve and its next move.

**Gideon Long** (3:03)
Well, inflation is more than just an economic indicator, of course. It affects the costs that businesses face every day from energy and transport to equipment, wages and finance. So let's start by hearing from some of the people who are experiencing those pressures firsthand. I'm joined by Brendan Doherty, co-owner of Signal Coffee Roasters Cafe in California, and Barb Kalmach, a soybean farmer in Iowa. Thank you so much for being on the program, both of you. Brendan, if I can start with you, when you saw those inflation figures, what were your first thoughts? Does it match what you're seeing and feeling in your business?

**Brendan Doherty** (3:39)
Gideon, it wasn't a surprise. In fact, what we've been seeing in California is upward pressure, not only from energy, but also from the rush to the Bay Area of California that pushes up housing prices and pushes up the demand on all of the things. For us, we know that the oil prices are going to put a great strain in everything that we sell and everything that we acquire to sell.
So that's not a real surprise, but I think there's going to be more to come.

**Gideon Long** (4:19)
And coffee, of course, is a global commodity, and we've seen very high coffee prices over the last couple of years. So what's hitting you most at the moment? Is it the price of coffee itself? Is it the inflation date? Is it shipping, energy, packaging? What's hurting the most?

**Brendan Doherty** (4:34)
I think you hit the nail on the head. Last year when we spoke, it was about two things. There was an embargo, and there was a lack of supply from problems in Brazil and rain and shortfalls in supply of crop. This year, the cost of actually transporting, you know, we get it from Ethiopia to California. We get it from Indonesia to California. These are, you know, put on giant shipping boats. And so the embedded costs of oil, when it goes up 7%, 8%, 10%, those start to really actually get booked into the numbers and can't be avoided.