The prices consumers pay for a wide range of goods and services rose faster than expected in April, further raising concerns about the impact of inflation on the U.S. economy.
The Consumer Price Index rose a seasonally adjusted 0.6% in the month, bringing the yearly pace to 3.8%, the Bureau of Labor Statistics said Tuesday. The monthly rate was in line with expectations, but the annual rate was 0.1 percentage point above the Dow Jones consensus.
Core CPI, excluding food and energy, rose 0.4% and 2.8%, respectively, with inflation well above the Federal Reserve’s 2% target. Fed officials believe the core is a better indicator of long-term inflation trends.
The annual headline inflation rate was the highest since May 2023, rising 0.5 percentage point from March. The core inflation rate rose by 0.2 percentage points annually.
Food prices also rose 0.5%, but energy prices, which rose 3.8%, were again the main driver of the inflation spike. For energy, the 12-month increase was 17.9%, while groceries rose 3.2%. The gasoline index rose at an annual rate of 28.4%.
Although energy, and gasoline in particular, has been in the headlines, inflationary pressures are coming from a variety of other areas as well.
Shelter costs rose 0.6% after easing last month, showing that inflation is an issue beyond the impact of the Iran war. Tariff-sensitive apparel categories increased by 0.6%, and airfares accelerated by 2.8%, bringing the 12-month rate of increase to 20.7%. Tariffs also appear to be affecting other sectors, with home furnishings and business rising 0.7%.
The report also contained bad news for workers, with real average hourly wages down 0.5% for the month and 0.3% for the year.
Stock market futures turned negative after the news, but U.S. Treasury yields rose. Traders also raised the probability that the Fed will raise interest rates by the end of the year to about 30%, according to CME Group data.
“Inflation is currently the main drag on the U.S. economy,” said Heather Long, chief economist at Navy Federal Credit Union. “This is hurting the American people. There is a real fiscal strain underway. For the first time in three years, inflation is eating up all of the wage increases. This is a setback for middle-class and low-income families, and they know it.”
The latest inflation news comes at a crossroads for the Fed, which has kept its benchmark interest rate unchanged throughout the year amid concerns among policymakers about where the central bank should go and how to communicate its intentions.
In late April, the Fed voted again to leave the measure unchanged, but with four dissenting voices, the most since 1992. Fed board member Stephen Millan voted again in favor of cutting rates by a quarter of a point, while three regional governors voted against language that markets saw as an indicator that the next move would be a rate cut.
At the same time, incoming chairman Kevin Warsh has advocated lowering interest rates, but it will be difficult to deal with the explosion in inflation since the fighting in Iran began. Energy prices are skyrocketing, with oil exceeding $100 per barrel nationwide and gasoline averaging more than $4.50 per gallon, according to AAA.
“Given that inflation is trending in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to cut rates anytime soon, and may even start pricing in rate hikes next year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
Although the stock market has remained resilient amid rising interest rates, consumer sentiment has hit an all-time low. Major average stock prices are just below their all-time highs as a strong earnings season for American companies draws to a close.
Personal consumption is also holding up, but this is mainly driven by higher income groups and the general trend of rising prices.
Correction: The Federal Reserve voted to keep rates unchanged in April. Previous versions listed the month incorrectly.
