Middle-East War Fuels US Consumer Inflation in April

US consumer prices increased at a brisk pace for a second straight month in April as the war with Iran pushed up energy costs and food prices surged, heightening political risks for President Donald Trump and his Republican party ahead of November’s midterm elections.

The back-to-back increases in the Consumer Price Index reported by the Labor Department on Tuesday culminated in the largest annual increase in inflation in three years.

Trump won re-election in 2024 in large part because of his promise to reduce inflation, but Americans have soured on his handling of the economy and many blame him for the pain at the pump.

The strong inflation readings added to data last week showing a larger-than-anticipated increase in nonfarm payrolls in April in strengthening economists’ expectations that the Federal Reserve would keep interest rates unchanged into 2027. “There is a real financial squeeze underway,” said Heather Long, chief economist at Navy Federal Credit Union. “For the first time in three years, inflation is eating up all wage gains. This is a setback for middle-class and lower-income households and they know it.”

The CPI increased 0.6 percent last month after surging 0.9 percent in March, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the CPI rising 0.6 percent. Estimates ranged from a 0.4 percent gain to a 0.9 percent increase.

The moderation after posting the largest increase since June 2022 was mostly mechanical. Oil prices shot above $100 a barrel in March following strikes against Iran by the US and Zionist entity, before pulling back to still-high levels after a ceasefire in early April.

The war’s impact was immediately reflected in more expensive gasoline, diesel and jet fuel. Economists believe the second-round effects would be felt in the months ahead.

A 3.8 percent increase in energy prices accounted for more than 40 percent of the rise in the CPI last month. That followed a 10.9 percent jump in March.

Gasoline prices rose 5.4 percent, while fuel oil increased 5.8 percent. Consumers also paid higher prices for electricity. Food prices accelerated 0.5 percent after being unchanged in March. Grocery store inflation shot up 0.7 percent, driven by a 2.7 percent increase in beef prices. Fruits and vegetable prices rose 1.8 percent while nonalcoholic beverages cost 1.1 percent more. There were also strong increases in the prices of dairy and eggs.

In the 12 months through April, the CPI advanced 3.8 percent. That was the biggest year-on-year increase since May 2023 and followed a 3.3 percent rise in March.

The US central bank, which tracks the Personal Consumption Expenditures price indexes for its 2 percent inflation target, last month left its benchmark overnight interest rate in the 3.50 perccent-3.75 percent range. US stocks opened lower. The dollar rose against a basket of currencies. US Treasury yields were higher.

“With no clear end to hostilities in sight, the primary catalysts for the increase in inflation - energy, oil, gasoline, transportation, and food - are all poised to jump higher in coming months as global supplies grow tight and supply chain stress rises,” said Joseph Brusuelas, chief economist at RSM.

Excluding food and energy, the CPI climbed 0.4 percent last month. That was the largest gain since January 2025 and partly reflected a one-time adjustment to rent measures after last year’s shutdown of the federal government prevented data collection.

The BLS splits its rent survey into six panels. Each panel is sampled every six months on a rotating basis. The BLS used a method called carry-forward imputation for rent and OER to account for the missing data, which had artificially lowered the rent indexes.