- A new Labor Department report found overall U.S. inflation hit 3.8% in April
- The April inflation rate was the highest since May 2023.
- The report notes rising energy costs were the main driver behind the inflation uptick.
Prices on U.S. consumer goods and services shot up in April, hitting an annual rate of 3.8%, the highest level in three years and driven largely by fallout from the Iran war.
Tuesday’s Consumer Price Index report from the Labor Department finds prices rose 0.6% from March to April, a sharp rise but down from the 0.9% monthly increase from February to March. Energy related costs jumped 3.8% on a monthly basis and were up 17.9% over the last 12 months, accounting for over 40% of the inflation increase, per the report.
While the CPI breakdown from the Labor Department shows gasoline prices up 28% from this time last year, AAA tracking pegs the current average price for a gallon of regular at $4.50 across the country, $1.37 more than a year ago, a price jump of over 40%.
The average price of a gallon of regular for Utah drivers was $4.57 on Tuesday per AAA, up 8 cents per gallon over the previous day and $1.31 per gallon more than a year ago.
Core inflation, which strips out volatile food and energy prices, came in at 2.8% in April, rising 0.4% on a monthly basis.
Housing-related costs moved up 0.6% from March to April and were 3.3% higher than this time last year. Grocery costs moved up slightly on a monthly basis and hit an annual inflation rate of 3.6% in April.
Will inflation push Fed to hike interest rates?
While the majority of April’s inflation increase was driven by higher energy costs, a direct result of the ongoing Iran war and continued disruption of petroleum shipments through the Strait of Hormuz, economists predict higher costs are in store for a broad array of consumer goods. For example, a recent Purdue University analysis predicts the broad energy shock precipitated by a sustained war could add three to six percentage points to grocery inflation over the coming 12 to 18 months.
Spiking inflation alongside a U.S. labor market that added 115,000 jobs last month and appears to be relatively stable has moved the target for the U.S. Federal Reserve when it comes to the direction of near-term monetary policy.
While just a few months ago the general consensus was that the Fed could make one or two interest rate reductions in the year ahead, with a focus on bolstering a lagging jobs market, the equation has flipped. In the light of rising inflation, a rate hike could very well be back on the table.
That scenario will likely provide a challenge for Kevin Warsh, President Donald Trump’s nominee to replace outgoing Fed chairman Jerome Powell. Warsh has cleared the first two hurdles on his way to the position with a final vote scheduled for later this week in the U.S. Senate.
Trump has been a vocal critic of Powell and the direction of the Fed since the start of his second term, demanding the monetary body lower interest rates. Warsh is expected to enter his new leadership role with an eye toward rate cuts but will need to get the Fed’s board of governors on board in circumstances in which arguments for a rate reduction are likely to ring hollow.
Interest rate adjustments are the Fed’s primary tool for maintaining its dual mandate of maximum employment and price stability. Generally speaking, higher rates raise the cost of debt, slow the economy and reduce inflation. Lower rates reduce the cost of borrowing and boost the jobs sector.
What consumers say about the economic impacts of Middle East war
Recent polling by the Deseret News in partnership with the University of Utah’s Hinckley Institute of Politics finds households in Utah and across the country united in their concern over how economic fallout from the Iran war is challenging their financial well-being and ratcheting up anxieties.
The survey revealed a striking level of worry among respondents in both the statewide and national samples, with 80% of Utah participants and 79% of national respondents saying that they’re at least somewhat concerned about the war’s impacts on the U.S. economy, with 51% and 50%, respectively, saying they are very concerned. Just 18% of Utah poll participants and 15% of national respondents said they were not too concerned or not at all concerned about the impacts.
Overall concern about how the war in Iran is affecting household budgets was similarly widespread, with 87% of Utah respondents and 79% of national participants saying the cost of daily goods has increased somewhat or a great deal. Only 3% and 7%, respectively, report they are paying prices that are somewhat or a great deal lower since the war began.