Inflation Accelerates After Weeks of War in Iran

Consumer prices in the United States rose at the fastest rate since May 2023 last month, as sharp increases in energy costs caused by war in the Middle East made life more expensive for American consumers.

The consumer price index rose 3.8% in April from a year earlier, the Labor Department reported Tuesday, up from a 2.4% annual increase before the conflict started in February and a 3.3% increase in March.

The increase was driven largely by energy prices, up 3.8% since the previous month and nearly 18% from a year earlier. But the "core" index, stripping out volatile food and energy prices, also rose 2.8% over the year in April, up from 2.6% in March.

"I'm looking for anything where I can say 'here's some relief,' and that's not very easy to do in this report," said Michael Reid, chief U.S. economist at RBC Capital Markets. "Generally inflation is moving in the wrong direction."

The Federal Reserve tends to look past swings in energy costs, as they are generally expected to recede before translating into underlying inflation. But the hotter-than-expected measure will weaken the case for cutting interest rates this year, just as President Donald Trump's pick for Fed chair, Kevin Warsh, takes over from Jerome Powell. After the strong jobs report last week, many analysts had already moved back their forecasts for cuts into 2027.

As the heat from Trump's tariffs has faded from inflation readings this year, shortages of commodities blocked from transiting through the Strait of Hormuz are taking its place as a pressure on prices. Average gasoline prices are above $4.50 per gallon, according to AAA, while diesel prices have nearly doubled.

Higher fuel costs are bleeding into prices for airline fares, which rose 2.8% in April, as well as goods that get to market in a diesel-fueled truck or on a boat. Grocery costs rose 2.9% since April 2025, driven largely by the price of beef, which has been rising for over a year because of smaller cattle herds. Tomato prices have risen nearly 40% from a year ago because of a combination of tariffs, severe weather affecting crop yields and higher fuel costs.

A statistical quirk also pushed up the index, as federal surveys caught up from the government shutdown in the fall. Unable to collect housing data on its normal schedule, the Bureau of Labor Statistics had to wait until April, masking what might have been a swifter deceleration given cooling rents and home prices. Rents and the measure of costs for people who own their home both rose 3.3% over the year, up from an annual increase of 3% for the previous three months.

Data issues aside, there may be some real market dynamics at play: Realpage, an apartment data platform, estimates that asking rents have been rising for the past four months after declining through 2025.

A few items kept the goods category from rising further, most notably used cars and trucks, which have fallen 2.7% since April 2025. Prices for appliances and medical care commodities also dropped last month. But apparel and sporting goods continued to grow and are up 4.2% and 3.9% over the year, respectively.

Business leaders also see the higher costs filtering into prices. Chief executives surveyed quarterly by the Cleveland Fed on average see inflation running at 3.7% over the next year, the highest expectation since April 2025, after Trump imposed sweeping tariffs on most of the rest of the world.

After the Supreme Court overturned that subset of tariffs, the average overall tariff rate stands at 11%, according to the Yale Budget Lab -- before taking into account how consumers have gravitated toward goods subject to lower tariffs. A Federal Reserve analysis recently found that the 2025 tariffs had been fully passed through to consumer prices, but it did not take into account subsequent tariff changes.

Consumers have registered their disapproval with higher prices as well, through record low economic sentiment measures and deeply negative approval ratings for Trump's handling of the economy.

Compounding their dissatisfaction, income growth has slowed. As of last month, when average hourly earnings rose 3.6% from a year earlier, prices are now increasing faster than wages. With productivity rising at a brisk pace, the share of national income that goes to workers has sunk to its lowest point on record, and the personal savings rate is as low as it's been since the pandemic recession.

"Businesses are not passing along those productivity gains to labor," said Chris Hodge, chief U.S. economist with the investment bank Natixis. Since Americans' bank accounts have been drained in recent years, they are likely to cut back on discretionary purchases if energy prices remain high.

"That's obviously not good for consumer purchasing power, but it is good for inflation dynamics," Hodge said.

This article originally appeared in The New York Times.

Copyright 2026 The New York Times Company

This story was originally published May 12, 2026 at 9:58 AM.