Headline U.S. consumer prices rose by more than anticipated on an annualized basis in April, driven in large part by a sharp — albeit cooling — jump in gasoline prices.
Analysts have been keeping close tabs on incoming inflation figures as they attempt to parse out the effect of an energy shock sparked by the Iran war and the path ahead for Federal Reserve interest rate policy. The Fed is widely tipped to keep borrowing costs unchanged for the time being, especially with officials keen not to roil the labor market following recently strong employment gains last month.
The consumer price index grew by 3.8% in the twelve months to April, faster than economists’ predictions of 3.7% and an increase of 3.3% in March. It was the fastest reading since May 2023.
However, month-on-month, the Labor Department’s measure slowed to 0.6% from 0.9%, in line with expectations.
Now at around $4.50 a gallon compared to $3.14 a year ago, gasoline-pump prices have been among the most visible item impacted by the more than two-month conflict. Seasonally-adjusted from the prior month, gas prices rose by 5.4%, versus 21.2% in March.
Crucially, the fighting in the Middle East has led to the effective closure of the Strait of Hormuz, a vital conduit for a fifth of the world’s oil. Global crude prices have spiked as a result, hovering well above pre-war levels.
The overall energy index rose 3.8% in April, accounting for more than forty percent of the monthly uptick in consumer prices.
But there has been some debate around whether the U.S., as a net energy exporter, will be broadly insulated from the uptick in oil costs. Much attention has swirled around whether a wider range of goods will also see prices go up.
So-called “core” CPI, which strips out volatile items like food and fuel, accelerated to 2.8% year-on-year and 0.4% on a monthly basis in April. Economists had predicted readings of 2.7% and 0.3% respectively.
Increases in the indices for items like household furnishings and operations, airline fares, personal care, apparel and education were partially offset by declines in the costs of new vehicles, communication and medical care.
In a note, analysts at Vital Knowledge flagged that the shelter category gained at a quicker pace in particular, because of higher hotel prices and rental expenses. They added that the step up in shelter costs was the “most surprising” element of the CPI report because it “was supposed to be one of the main sources of /deflationary pressure in the economy.”
“If shelter is accelerating while Iran fallout flows through other price categories, it’s likely the upward inflation pressure will continue for a while longer, increasing the odds of a Fed hike,” the Vital Knowledge analysts said.
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