Inflation heated up in April to the hottest level in three years as the Iran war drove energy prices higher, and started to filter through the economy – likely keeping the Fed on hold when it comes to interest rates.
The Consumer Price Index jumped 3.8% in April over the past 12 months – higher than an expected 3.7% increase and the highest headline rate since May 2023, the Bureau of Labor Statistics said Friday.
As the Iran war disrupts global energy supplies and sends prices soaring, the headline figure is no longer inching toward the Fed’s 2% goal – instead rising sharply from March’s 3.3% gain and February’s 2.4% pace.
The core CPI figure – which excludes volatile food and energy prices – rose to 2.8% from March’s 2.6% reading, signaling it’s not just gasoline driving the increase.
Skyler Weinand, chief investment officer at Regan Capital, said recent inflation and employment data suggests the Fed’s next move should actually be an interest-rate hike – but that is very unlikely given “the political pressure” facing incoming chairman Kevin Warsh.
Instead, the Fed is likely to stay in wait-and-see mode as officials look for more insight into how the war is hitting the economy, and President Trump pushes for rate cuts.
“The first order effect from the conflict in the Middle East have been a shock to oil prices, which have translated very quickly to what consumers are paying at the pump, but the next frontier to watch is rising input prices for food and materials, and that makes the Federal Reserve’s job even tougher,” Weinand said in a note Tuesday.
The energy index jumped 3.8% in April – accounting for more than 40% of the overall inflation reading. Energy prices are up 17.9% over the past 12 months.
Gasoline prices rose 5.4% in April, up 28.4% over the past year.
Trump on Monday said he supports temporarily suspending the federal gasoline tax.
National average gasoline prices have been hovering around $4.50 a gallon this week, as mounting concerns over inflation sent consumer confidence to a fresh record low in May.
Food and shelter costs rose 0.5% and 0.6% in April – up 3.2% and 3.3% over the past year, respectively – signaling that inflation is becoming a broader issue beyond energy supply shocks.
Tariff-sensitive categories like apparel and household furnishings rose 0.6% and 0.7%, respectively.
Airline fares jumped 2.8% for a 20.7% rise over the past 12 months as carriers struggled to swallow higher fuel costs. Many airlines have also started hiking their checked bag fees and cutting down on longer routes, while budget carrier Spirit Airlines was forced to cease operations altogether.
As inflation roared back, real average hourly wages for workers slipped 0.5% in April, down 0.3% over the past year.
