Consumer prices for a wide range of goods and services rose at a faster-than-expected pace in April, raising further concerns about the impact of inflation on the US economy.
The consumer price index rose a seasonally adjusted 0.6%, putting the one-year pace at 3.8%, the Bureau of Labor Statistics reported Tuesday. The monthly rate was as forecast, but the annual rate was 0.1 percentage point above the Dow Jones consensus.
Excluding food and energy, core CPI rose 0.4% and 2.8% respectively, keeping inflation above the Federal Reserve’s 2% target.
The annual headline inflation rate was the highest since May 2023 and was up half a point from March. Inflation increased by 0.2 percent annually.
Electricity prices, which rose by 3.8%, were also the biggest contributor to inflation, although food prices also rose by 0.5%. For energy, that puts the 12-month gain at 17.9%, while food is up 3.2%. The fuel index increased by 28.4% year-on-year.
While energy and fuel in particular have been the headlines, inflationary pressures are also coming from other areas.
Accommodation costs rose 0.6%, the duty-free goods category rose 0.6% and air fares rose 2.8%, putting the 12-month profit at 20.7%. Taxes also took a hit elsewhere, with household goods and labor rising 0.7%.
The report also contained bad news for workers, as average hourly earnings fell 0.5% for the month and 0.3% for the year.
Stock market futures were negative following the report while Treasury yields were higher. Traders also raised the odds of a Fed rate hike by the end of the year to nearly 30%, according to CME Group data.
“Inflation is the key driver of the US economy right now,” said Heather Long, an economist at Navy Federal Credit Union. “This is hurting the American people. There is a real financial squeeze going on. For the first time in three years, inflation is eating away at all wages. This is holding back 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 interest rates steady for a year amid doubts among policymakers both about where the central bank should be heading and how it should communicate its intentions.
In late April, the Fed voted again to hold but saw four dissenters, the highest since 1992. Finance Governor Stephen Miran also voted no to a quarter-percent cut, while three state presidents objected to language that markets read as an indication that the next move would be cuts.
At the same time, incoming Chairman Kevin Warsh has advocated for lower rates, a position that will be difficult to balance with the explosion of inflation since the war in Iran began. Energy prices have risen, with oil running above $100 a barrel and gasoline at $4.50 a gallon nationally, according to AAA.
“With inflation moving in the wrong direction and the labor market stagnating, it’s unlikely the Fed will be able to cut interest rates anytime soon and we may start pricing in rate hikes next year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
Correction: The Federal Reserve voted not to hold in April. The previous version did not correctly name the month.
