Prices rose at their fastest annual pace since 2023 in April, adding pressure on households and complicating the Federal Reserve’s policy outlook. The latest figures come as higher energy costs linked to the war with Iran continue to affect consumers and businesses across the United States.
Inflation data released on Thursday also coincided with weaker economic growth figures and signs that household finances are becoming more strained. Policymakers are now weighing whether interest rates may need to remain elevated for longer, or even increase, if price pressures persist.
According to the US Commerce Department’s Bureau of Economic Analysis (BEA), the Personal Consumption Expenditures (PCE) price index rose 3.8% in the 12 months to April. That marked the largest annual increase since May 2023 and matched economists’ expectations reported by Reuters.
The figures arrive at a politically sensitive moment for President Donald Trump, whose administration faces growing scrutiny over the cost of living ahead of November’s midterm elections. Surveys cited by Reuters indicate that frustration with economic conditions has contributed to a decline in the president’s approval rating.
Energy Prices Drive Broader Inflation Pressures
The latest inflation increase has been closely linked to disruptions caused by the war with Iran. According to Reuters, the conflict has affected shipping through the Strait of Hormuz, contributing to higher energy prices and supply chain strains affecting a range of goods.
Data from the US Energy Information Administration (EIA) showed that the national average retail gasoline price increased by 12.3% in April. Reuters reported that petrol prices have risen by more than 50% since the conflict began at the end of February.
Monthly data reflected those pressures. The overall PCE price index increased by 0.4% in April after rising 0.7% in March. Goods prices rose 0.7%, while gasoline and other energy products increased 5.5%. Food prices, which had previously eased, rose 0.5% during the month.
Underlying inflation also remained elevated. According to the Bureau of Economic Analysis, the core PCE index, which excludes food and energy prices, increased 3.3% year-on-year in April, up from 3.2% in March. On a monthly basis, core inflation rose 0.2%.
The New York Times reported that the annual core inflation rate was the highest since November 2023, reinforcing concerns among some Federal Reserve officials that inflation may prove more persistent than expected.
Consumers Face Pressure as Growth Slows
Alongside rising prices, economic data pointed to weaker household finances and slower growth. According to Reuters, income adjusted for inflation fell 0.5% in April, marking a third consecutive monthly decline in real disposable income.
Consumer spending continued to increase, but at a more modest pace when adjusted for inflation. Real consumer spending edged up by 0.1% in April, compared with a 0.3% increase in March. The savings rate also fell to 2.6%, its lowest level since June 2022.
The Commerce Department also revised its estimate of first-quarter economic growth. Reuters reported that annualised GDP growth was reduced to 1.6%, down from the previously estimated 2.0%. Consumer spending growth for the quarter was revised to 1.4% from 1.6%.
According to the New York Times, a growing number of Federal Reserve officials have become more open to the possibility of raising interest rates if inflation does not ease. Financial markets currently expect the central bank to keep its benchmark rate within the 3.50% to 3.75% range into 2027, while policymakers continue to assess the impact of the latest inflation surge on the wider economy.
