High gas prices are just the start — inflation is seeping into the rest of the economy

Americans don’t need a press release to know that inflation is rising. Gasoline is above $4 per gallon amid the ongoing conflict in the Middle East and closure of the Strait of Hormuz, and the release of key price data on May 28, 2026, underscores why policymakers are worried these pressures could spread into the broader economy.

The report offered a mixed but still uncomfortable picture. The month-to-month rise was softer than expected, but the change year over year still points to concern: a 3.8% jump from a year earlier, the fastest pace since 2021, and a less volatile index that excludes food and energy up 3.3%.

This increase suggests inflation isn’t limited to gasoline. Housing, utilities and recreational spending are also keeping underlying inflation elevated, even as other data shows a slowing economy and weaker income growth.

As finance and applied investments professors who study how businesses make decisions amid uncertainty, we have been watching this tension build. In our 2026 economic outlook, we warned that recession fears could persist alongside rising prices. Fresh inflation data now suggests the challenge may be deeper and longer lasting than many expected.

Are all prices rising?

The fresh inflation data comes from the Personal Consumption Expenditures Price Index, or headline PCE, which is maintained and released by the Commerce Department’s Bureau of Economic Analysis. Headline PCE had already been getting hotter, rising to 3.5% year on year in March 2026, up from 2.8% in February. But an even more important metric for the Federal Reserve is core PCE, which excludes the more volatile categories of food and energy. Core PCE matters because it gives policymakers a clearer read on underlying inflation pressures and is generally considered a better predictor of where inflation is headed, the Fed’s chief concern. That has been rising this year as well.

The key question isn’t simply whether gas prices are rising, but whether those higher energy costs are spreading into the rest of the economy.

That’s why energy costs are both a measure of current........

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