US Inflation Accelerates to 3.8% in April Amid Energy Crisis, Consumer Sentiment Hits Record Low
Consumer inflation jumped to 3.8% annually in April, the highest in three years, driven by oil supply disruptions from the Iran conflict. Meanwhile, the Michigan Consumer Sentiment Index plummeted to a record low of 48.2 as consumers worry about gas prices and tariffs.
Inflation Surge on Energy Shock
Consumer Price Index (CPI) came in at 3.8% annually in April 2026—the highest reading since May 2023. The acceleration is primarily driven by the Middle East energy crisis, where the Strait of Hormuz blockade has squeezed global fuel and energy prices. Core CPI also topped expectations at 2.8% year-over-year.
Consumer Confidence Crumbles
The University of Michigan Consumer Sentiment Index collapsed to 48.2 in May, marking the lowest point in history. Consumers are increasingly anxious about:
- Surging gas prices due to the Iran conflict
- Trump's tariff regime, which has pushed effective tariff rates to 11.7%
- Deteriorating purchasing power despite recent wage gains
Fed Policy Uncertainty
April's hotter-than-expected inflation data is likely to put the Federal Reserve on guard for creeping consumer prices and potentially leave the door open for interest rate hikes later this year. Markets are pricing in a nearly 98% chance that the Fed will hold rates steady at its next meeting in June and through most of 2026, but looking out to December, there's now a nearly 30% chance of a rate hike.
Stagflation Echoes
The combination of high inflation and weakening consumer sentiment has revived 1970s stagflation comparisons. Comparisons to the stagflation of the 1970s have re-emerged in market commentary, and the parallels are real enough to take seriously—a Middle East-driven oil shock has arrived alongside an inflation impulse at a moment when growth is already slowing.