Gas Prices Lift US Inflation to 3.8 Percent, the Highest Level in Nearly 3 Years

Consumer prices accelerated for the second straight month in April as the war in Iran added to renewed inflationary pressures.

The annual inflation rate rose to 3.8 percent from 3.3 percent in March, according to new Bureau of Labor Statistics data released on May 12.

This is now the highest level of inflation since May 2023.

Last month’s headline reading came in above the consensus estimate of 3.7 percent.

On a monthly basis, the consumer price index (CPI) rose by 0.6 percent, in line with market forecasts.

Energy accounted for more than 40 percent of all monthly increases. The index rose by 3.8 percent, fueled by a 5.4 percent jump in gasoline.

Gas prices have risen sharply since the outbreak of the 11-week-old conflict in the Middle East, up by about 50 percent. This is the result of soaring oil markets, with a barrel of West Texas Intermediate—the U.S. benchmark for crude prices—at more than $100.

The national average for a gallon of gasoline is $4.50, according to the American Automobile Association.

The food index also lifted April’s inflation, rising by 0.5 percent. Supermarket prices advanced by 0.7 percent following the previous month’s 0.2 percent decline.

Protein foods reaccelerated last month as beef and veal climbed by almost 3 percent. Pork rose by 0.6 percent, ham rose by 0.3 percent, and fish and seafood rose by 1.5 percent. Eggs, which have cratered over the past year, also advanced by 1.5 percent.

Excluding food and energy, the 12-month core inflation rate rose to 2.8 percent in April from 2.6 percent—the highest rate since September 2025.

Core inflation also edged higher by 0.4 percent, above economists’ expectations of 0.3 percent.

“Inflation is moving higher again as the war in Iran—and the associated closing of the Strait of Hormuz—is impacting both the headline number as expected, but also the Core,” Chris Zaccarelli, chief investment officer of Northlight Asset Management, said in a note emailed to The Epoch Times.

Underlying inflation pressures could be building as higher energy costs filter through the broader economy. Monetary policymakers tend to look past oil price spikes and focus on structural inflation, since their decisions have little influence over geopolitical developments and energy shocks.

Although the Federal Reserve will receive another batch of inflation data before it convenes next month’s two-day policy meeting, investors widely expect that the data will prompt policy to hold steady.

Futures market data indicate that traders are pricing in no rate cuts this year. However, the odds of a rate hike in 2027 have crept higher in recent weeks.

“Given that inflation is heading in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to lower interest rates any time soon and it’s possible that we may start pricing in rate hikes for next year,” Zaccarelli said.

As for the May CPI report, the annual inflation rate is anticipated to tick up to 3.9 percent, according to the Cleveland Fed’s Nowcasting model.

Meanwhile, shelter costs added to consumer inflation, climbing by 0.6 percent.

Elevated housing inflation has been sticky for the past few years, despite long-standing expectations that it would come down.

A blend of constrained supply and muted buying activity has kept home prices higher.

President Donald Trump’s trade agenda continues to have a mixed impact on tariff-sensitive items.

The apparel index rose by 0.6 percent, while new vehicles fell by 0.2 percent. Appliances fell by 0.4 percent, smartphones jumped by 1 percent, televisions climbed by 1.2 percent, and canned fruits and vegetables were unchanged.

After the Supreme Court struck down the president’s emergency tariffs, Trump shortly thereafter imposed a 10 percent universal tariff on all foreign goods entering the United States.

Supercore inflation—core services inflation that excludes housing—also shot up by 0.45 percent.

Market Reaction

U.S. stocks retreated following the April CPI report.

The tech-heavy Nasdaq composite index fell by more than 200 points, or 0.7 percent. The broader S&P 500 dipped by 0.3 percent, while the blue-chip Dow Jones Industrial Average was little changed.

Yields on U.S. Treasury securities were mostly up, with the benchmark 10-year firming above 4.43 percent. The 20- and 30-year yields also reached 5 percent.

The two-year yield, which tracks Fed policy expectations, rose above 3.97 percent.

The U.S. dollar index, a measure of the greenback against a weighted basket of currencies, climbed by 0.3 percent. Year-to-date, the index is flat.