US Consumer Inflation Hits 3.8% in April—Highest Since May 2023, Raising Rate Hike Odds
The Consumer Price Index surged 3.8% annually in April due to surging energy prices from the Iran war, pushing markets to price in a higher likelihood of Fed rate hikes and dampening expectations for rate cuts this year.
April Inflation Report Exceeds Expectations
The consumer price index rose at a seasonally adjusted 0.6% for the month, putting the one-year pace at 3.8%, the highest since May 2023. The monthly rate was as forecast, but the annual rate was 0.1 percentage point above the Dow Jones consensus.
Energy and Food Prices Drive Inflation
Energy prices, which jumped 3.8%, accounted for more than 40% of the headline gain, while food prices also climbed 0.5%. For energy, that put the 12-month gain at 17.9%, while food was up 3.2%. The gasoline index increased 28.4% annually.
Fed Rate Hike Expectations Increase
Traders raised the odds for a Fed rate hike by the end of the year to about 30%, according to CME Group data. One analyst stated: "Given that inflation is heading in the wrong direction and the labor market is holding up, it's very unlikely that the Fed will be able to lower interest rates any time soon and it's possible that we may start pricing in rate hikes for next year."
Impact on Wage Earners
The report also contained bad news for workers, as real average hourly wages slipped 0.5% for the month and fell 0.3% annually.