Inflation hits three-year high in April as Iran war impacts consumer prices
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Consumer prices continued to surge in April, led by higher energy prices, the government said on Tuesday.
Why it matters: The April report shows that inflationary pressures tied to the Iran war are seeping into consumer prices, making it difficult for the Federal Reserve to cut interest rates just as President Trump's pick is set to take the helm of the central bank.
By the numbers: The Consumer Price Index rose 3.8% in the 12 months through April, up from 3.3% in March and the highest since 2023.
- On a monthly basis, CPI gained 0.6%, slowing from the 0.9% increase in March, the first full month of the war.
Zoom in: Core CPI, which excludes food and energy prices, was more benign even as it continued to accelerate. The gauge advanced 2.8% in the year ending in April. That's up from 2.6% in March.
- For the month, it increased 0.4%, up from the 0.2% gain in March.
Between the lines: Some economists anticipate that the energy shock will begin to bleed into other categories as industries that rely on energy and other key commodities impacted by the Strait of Hormuz's effective closure pass along costs to consumers.
Zoom out: Energy accounted for more than 40% of CPI's monthly rise, even as prices rose more slowly than in March, the government said. Energy costs surged roughly 4% after an 11% gain the prior month.
- Food prices also soared in April: Grocery prices rose 0.5%, while dining out costs gained 0.7%. Both are the biggest monthly surges since the end of 2025. Before that, you would have to go back to 2022 to see higher monthly spikes.
- Airfares climbed 2.8% last month after rising by a similar amount the previous month.
Of note: April's report was affected by last year's government shutdown. The upshot: hotter shelter inflation, though underlying housing dynamics remain unchanged.
- The Bureau of Labor Statistics surveys the same rental units every six months. But when the government shut down, officials couldn't collect data — so there was no October CPI report, and shelter prices were simply carried forward unchanged.
- Last month, those same units were surveyed, forcing a year's worth of rent changes into a six-month window.
- Shelter prices increased 0.6%, up from the 0.3% gain in March.
The big picture: The Fed is caught in a bind. Inflation has run above its 2% target for five years, now amplified by an energy shock, while a stable labor market removes any urgency to cut rates.
- The central question is whether the shock proves fleeting — something the Fed can look through — or if it embeds itself in prices more broadly.
- Trump's pick to lead the Fed, Kevin Warsh, will inherit the dilemma. He's expected to be confirmed by the Senate this week, as current Fed chair Jerome Powell's term expires.
Editor's note: This story has been updated with additional details.
