The acceleration of U.S. inflation in April continued, driven by rising gasoline prices due to the Iran conflict and a sharp jump in grocery costs. Data released by the Bureau of Labor Statistics on Tuesday showed the Consumer Price Index (CPI) rose 3.8% year-over-year, marking the fastest pace since 2023, and increased 0.6% month-over-month. Meanwhile, inflation-adjusted real average hourly earnings fell 0.3% year-over-year, the first decline in three years. Excluding food and energy, the core CPI rose 0.4% month-over-month and 2.8% year-over-year. The rise in core CPI was partly influenced by distortions in rent data collection stemming from the 2025 government shutdown.
The impact of war is beginning to show in economic data. The latest figures indicate that the conflict's effects on the U.S. economy are emerging as energy costs surge. The Bureau of Labor Statistics reported that gasoline prices rose over 5% in April, following a 21% jump in March. Other categories, including groceries and airfare, also recorded significant increases. If prices continue to accelerate, consumers may cut back on spending.
Analysts note that rising energy and food prices have a more direct impact on consumer psychology and actual purchasing power compared to fluctuations in durable goods prices. If the cost of essential goods continues to climb, U.S. households may be forced to reduce discretionary spending, subsequently dragging down future consumption demand.
Gus Faucher, Chief Economist at PNC Financial Services Group, stated, "Inflation, which was thought to be under control, is reaccelerating. This is a real problem. The longer inflation remains elevated, the more pressure consumers will face."
Inflationary pressures are unlikely to ease quickly, even with a ceasefire. Economists anticipate that even if the current ceasefire holds and the Strait of Hormuz reopens soon, elevated costs may persist for several months as oil production normalizes and shipping traffic resumes. Rising fertilizer prices are expected to push grocery bills higher, while high oil prices could also make other goods and services more expensive as businesses attempt to pass on transportation costs to consumers.
The April CPI data showed airfare was one of the major contributors to the increase: due to soaring jet fuel costs, airlines have raised ticket prices and baggage fees while cutting capacity, leading to a 2.8% month-over-month rise in airfare. The data indicated that overall service costs, excluding energy and housing, rose 0.5% month-over-month. Hotel prices increased 2.8%, the largest monthly gain since 2024. Grocery prices rose 0.7%, the sharpest increase in nearly four years. Prices for meat, dairy, fresh fruits, and vegetables all saw notable increases. In recent years, food prices have been a primary concern for purchasing power and could influence U.S. public perception of the economy ahead of the upcoming midterm elections.
Core inflation in April was boosted by the rent index, but this metric was distorted by last year's government shutdown. Housing costs rose 0.6% month-over-month, the largest increase in over two years. Rent data is based on a rolling sample of rental housing collected every six months. Due to the inability to collect data during the shutdown, the Bureau of Labor Statistics essentially did not update these samples in October last year. When these samples were repriced in April, they captured a full year of price increases rather than the typical six-month period, making the monthly change appear roughly double the normal rate.
A decline in new car prices offset increases in other core goods. Excluding food and energy, core goods prices were flat month-over-month, primarily due to falling new car prices. Economists have been monitoring whether retailers have finished passing on higher costs from tariffs imposed by former President Trump, while remaining cautious that rising fuel prices could push goods prices higher again later this year. Some categories more affected by tariffs—such as apparel and toys—saw smaller month-over-month increases compared to March. Used car prices were unchanged.
As inflation reaccelerates and real wages turn negative, the Federal Reserve faces a more complex policy environment. On one hand, the overall resilience of the U.S. labor market means the Fed is not compelled to rush into rate cuts to stimulate the economy. On the other hand, the resurgence of energy-driven inflation is also dampening market expectations for future monetary easing.
Futures markets indicate investors have significantly scaled back bets on further rate cuts in 2026. Some analysts believe that if energy prices remain elevated and services inflation stays persistently strong, the Fed may need to maintain higher interest rates for a longer period.
However, other economists point out that the current inflationary pressure stems more from the war and energy supply shocks rather than broad-based overheating demand. Consumers are being squeezed by higher gasoline and food prices, reducing spending on other items, which suggests core demand may not be strengthening in tandem.
The inflation gauge the Fed focuses on more closely—the Personal Consumption Expenditures (PCE) Price Index—assigns a lower weight to housing than the CPI. The Producer Price Index (PPI), to be released on Wednesday, will provide further information on prices for categories like airfare and influence the PCE data to be released later this month. Analysts suggest that if subsequent PCE data does not show significant synchronized acceleration, the Fed may remain in a "wait-and-see" mode rather than quickly pivoting toward further tightening.
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