US Annual Consumer Inflation Posts Largest Gain in Three Years as Prices Increase Broadly

• U.S. consumer inflation increased further in April, with the annual rate posting its largest gain in three years, stoking political risks for President Donald Trump and his Republican Party ahead of ​November's midterm elections. The back-to-back rises in the Consumer Price Index reported by the Labour Department on Tuesday reflected strong gains in energy costs amid the U.S.-Israeli war with Iran. ‌Food prices surged last month, and inflation also spilt over to the services sector, with higher rental costs and airfares.
• Trump won re-election in 2024 in large part because he promised to reduce inflation, but Americans have soured on his handling of the economy, and many blame him for the pain at the pump. Rising inflation outpaced wage gains for the first time in three years and underscored the financial strain on households.
• With no end in sight to the conflict, economists warned prices would continue to push higher and broaden in ​the months ahead. Trump on Monday proposed reducing the 18.4-cent federal gasoline tax to lower prices at the pump.
• The CPI increased 0.6% last month after surging 0.9% in March, the Labour Department's Bureau of Labour Statistics said. Economists polled by Reuters had forecast ​the CPI rising 0.6%. Estimates ranged from a 0.4% gain to a 0.9% increase. The moderation after posting the largest increase since June 2022 was mechanical. Oil prices shot above $100 a barrel in March following strikes against Iran, before pulling back ​to still-high levels after a ceasefire in early April.
• While the conflict's impact was immediately reflected in more expensive gasoline, diesel and jet fuel, economists said the second-round effects were around the corner, including for goods trucked by road. Shipping disruptions in the Strait of Hormuz are straining supply chains. A 3.8% increase in energy prices accounted for more than 40% of the rise in the CPI last month. That followed a 10.9% jump in March. Gasoline prices rose 5.4% after a record 21.2% surge in March. Meanwhile, Food prices accelerated 0.5% after being unchanged in March.
• The strong inflation readings added to the data last week, showing a larger-than-anticipated increase in nonfarm payrolls in April, strengthening economists' expectations that the Federal Reserve would keep interest rates unchanged into 2027. The U.S. central bank, which tracks the Personal Consumption Expenditures price index for its 2% inflation target, last month left its benchmark overnight interest rate in the 3.50%-3.75% range.

(Source: Reuters)