April Consumer Inflation Hits 3.8%—Highest Since May 2023—Raising Rate-Hike Odds
U.S. consumer inflation jumped to 3.8% annually in April, the highest level in nearly three years, as the Iran war drives up energy prices and threatens to spread into other categories like food and shelter. The reading has prompted markets to price in a meaningful chance of Fed rate hikes later this year.
Headline Inflation Accelerates Beyond Expectations
The consumer price index rose by 3.8% annually in April, the most since May 2023, topping the 3.7% expected by economists polled by Dow Jones. Excluding food and energy, inflation rose by 2.8% annually.
Energy's Outsized Influence
Since the fighting began in late February, energy prices have been soaring, accounting for more than 40% of a gain in the consumer price index that sent the headline inflation level to its highest in nearly three years. The 2.1% rise in monthly electricity prices, compared with March, and 0.5% gain in monthly food prices from the prior month were both upward surprises.
Fed Rate-Hike Odds Rising
Markets priced in a better than 1-in-3 chance of an increase by the end of this year, as expectations rose that cost of living concerns would outweigh any worries about the labor market deteriorating. April's inflation rate means prices are now rising faster than wages for the first time since 2023, which could aggravate the affordability crisis that has already been gripping consumers.