April Inflation Jumps to 3.8% as Energy Costs Surge
U.S. inflation rose to 3.8% in April, the fastest pace in over three years, as energy prices spiked due to the Iran war and other factors. The hotter-than-expected reading has pushed markets away from expecting Fed rate cuts and raised the probability of rate hikes.
Consumer Inflation Accelerates Beyond Expectations
The consumer price index rose by 3.8% annually in April, the most since May 2023. Economists polled by Dow Jones expected an increase of 3.7% from the year-earlier period.
Energy and Food Drive Price Pressures
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. Energy prices accounted for 40% of the increase, while shelter and food also surged.
Fed Rate Hike Odds Rising
Traders moved further away Tuesday from expecting any Federal Reserve interest rate cuts and in fact began anticipating a higher probability that the next move would be a hike. Following a hotter-than-expected inflation report, market pricing took virtually any chance of a cut off the table between now and the end of 2027. Instead, they priced in a better than 1-in-3 chance of an increase by the end of this year.