The Federal Reserve’s preferred inflation gauge rose to a new three-year high in May as gas prices peaked, a sign rising costs could pose political problems for President Donald Trump and his political party as midterm elections near.

Consumer prices rose 4.1% in May from a year earlier, the Commerce Department said Thursday, the largest annual increase since April 2023. On a monthly basis, inflation was 0.4% last month, matching April’s increase and down from 0.7% in March.

The increase was largely driven by more expensive gas, as well as pricier semiconductors and other computer equipment that are in high demand for the AI buildout. Rising prices have caused the inflation-fighters at the Federal Reserve to keep their key rate unchanged this year, a reversal from January when they had penciled in two cuts. Some economists forecast the central bank could lift rates this year instead.

“Underyling inflation is closer to 3% rather than 2%,” said Mark Vitner, chief economist at Piedmont Crescent Capital. “It does suggest to me that the next Fed move, whenever it comes, is more likely to be a hike than a cut.” The Fed probably won’t raise rates until next year, he added.