For the first time in three years, American workers' paychecks are lagging behind inflation, a casualty of the Iran war energy shock.

Why it matters: The war's fallout has helped remove the financial cushion that insulated consumers. It comes as a tepid hiring environment has limited workers' ability to switch jobs and earn more pay.

• Workers are now earning less in real terms, a threat to spending that has kept the economy humming.

What they're saying: "American households continue to feel the brunt of surging energy costs, adding to the deluge of inflation they have weathered since the pandemic," James McCann, a senior economist at Edward Jones, wrote in a note.

• "Moreover, with the Strait of Hormuz still effectively shuttered, the risk that we are not past the peak of these price pressures is rising."

Driving the news: The Consumer Price Index rose 3.8% in April from the same period a year ago, surging from the previous month's reading of 3.3% to the highest level since 2023.

• Wages for rank-and-file employees increased 3.6% over the same period, strengthening relative to March but not enough to offset inflation.
• In other words, worker pay fell 0.2% in real terms, the first year-over-year drop since 2023.

Zoom out: April's CPI report shows persistent price pressure in categories most salient for consumer budgets — food and energy — even if Federal Reserve officials tend to look past them.

• Higher energy prices accounted for the bulk of the 0.6% jump in inflation last month, rising nearly 4% after a gain of roughly 11% in March. Compared with the same period a year ago, energy costs are up 18%.
• But food prices also soared in the second full month of the war, after benign readings in March: Both grocery costs and dining out advanced at the quickest monthly pace since the end of last year, before President Trump rolled back tariffs on a slew of food imports.
• Airfares also continued to surge as airlines face higher jet fuel costs, rising almost 3% after a similar gain in March.

The big picture: American households have absorbed a rise of nearly 30% in consumer prices since the pandemic — a cumulative toll that has never fully healed.

• The renewed squeeze is landing on already stretched budgets, with consumer sentiment at record lows.
• The 2022-23 squeeze was driven by supply chain distortions unwinding from the pandemic, when a historically tight labor market gave workers real leverage to job-hop for bigger paychecks.
• But today's pressure is harder to dodge, with an energy shock born from an uncertain war. It's hitting consumers who have fewer opportunities to switch jobs and bargain for more pay.

What to watch: Core inflation — which strips out food and energy — gained a more modest 2.8% over the past year, suggesting that the Iran shock hasn't yet fully bled into broader prices. The Fed will be watching whether that holds.

• Even that core measure likely overstates the price pressures outside of those categories.
• The shelter index, which carries significant weight in core CPI, rose 0.6% in April alone. That reading was distorted by the six-week government shutdown last fall that interrupted normal data collection.

The good news if you're Warsh is that your Senate confirmation is proceeding on pace and you're on track to lead the Federal Reserve when Jerome Powell's term ends Friday.

• The bad news is that it will be with the most partisan vote for a Fed chair in history.

Driving the news: Last evening, a procedural vote to advance that nomination passed 49-44, with Sen. John Fetterman (D-Pa.) and Sen. Chris Coons (D-Del.) joining all Republicans who were present.

• This morning, the Senate was set to confirm Warsh for a governor's term that runs to 2040. Warsh will need to be separately confirmed for a four-year term as Fed chair, a vote that could come as early as tomorrow.

By the numbers: If Fetterman and Coons remain the lone Democratic "yes" votes and all Republicans are present to vote and support Warsh, he will be confirmed by a 55-45 majority, the narrowest for a Fed chair on record.

State of play: Democrats are skeptical that Warsh will lead the central bank with sufficient independence from Trump.

• Some also argue that his financial disclosures and stated plans to unwind his expansive investment portfolio are insufficient.

Flashback: Four years ago, Jerome Powell was confirmed to a second term on the job with 80 Senate votes.

• In 2014, Janet Yellen had 56 "yes" votes — but many senators were absent due to a winter storm, so her margin was comparatively wide, at 56-26, with 10 Republicans supporting her.

Between the lines: Warsh will take office with rock-solid support from Republicans, but without the bipartisan buy-in his predecessors have enjoyed.

• It is worth watching how he navigates that environment. Powell's approach to Congress was to assiduously court lawmakers on both sides of the aisle.