- New Commerce Department report finds U.S. inflation hit three-year high in April
- Saving rates also declined last month as income levels flattened out
- Iran war fallout is driving up prices beyond energy categories
Two separate federal reports have now found inflation hit a three-year high in April as fallout from the Iran war drives price spikes on gas and other petroleum products and, increasingly, a wide range of basic necessities.
Thursday’s Personal Consumption Expenditures Price Index from the U.S. Commerce Department finds overall inflation hit 3.8% in April, up from March’s 3.5% reading and the highest annual rate since May 2023. Core PCE inflation, which strips out volatile food and energy prices, came in at 3.3% last month.
The 12-month PCE reading for April matches the 3.8% rate found by the Labor Dept. in its Consumer Price Index report released earlier this month.
Thursday’s Commerce Department report also shows average incomes were flat for the month of April and disposable income, a post-tax measure, fell by 0.1%. The overall average consumer saving rate also declined last month, dropping to 2.6%, the lowest level since 2022.
“Americans are being squeezed financially,” Heather Long, chief economist at Navy Federal Credit Union, wrote in a note Thursday, per a report from CNN. “Inflation is at a three-year high and personal savings has cratered to one of the lowest levels in the past 20 years. Many Americans are spending more than the income they have coming in. This is not sustainable, especially for lower-income and middle-class households.”
How will the Fed respond to inflation reports?
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.
That scenario will likely provide a challenge for newly installed Federal Reserve Chairman Kevin Warsh, President Donald Trump’s pick to replace the outgoing Fed chairman, Jerome Powell.
Warsh is expected to navigate 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 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.