Inflation Accelerates After Weeks of War in Iran

 

Inflation Accelerates After Weeks of War in Iran

 

The Consumer Price Index rose 3.8% in April from a year earlier as higher energy costs replaced tariffs as the driver of higher prices for Americans.

 

Lydia DePillis

By Lydia DePillis

May 12, 2026

Updated 10:41 a.m. ET

https://www.nytimes.com/2026/05/12/business/economy/cpi-inflation-report-consumer-prices.html

 

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 percent in April from a year earlier, the Labor Department reported on Tuesday, up from a 2.4 percent annual increase before the conflict started in February and a 3.3 percent increase in March.

 

The increase was driven largely by energy prices, up 3.8 percent just since the previous month and nearly 18 percent from a year earlier. But the “core” index, stripping out volatile food and energy prices, also rose 2.8 percent over the year in April, up from 2.6 percent 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 Trump’s pick for Fed chair, Kevin Warsh, takes over from Jerome H. Powell. After the strong jobs report last week, many analysts had already moved back their forecasts for cuts into 2027.

 

As the heat from Mr. 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 percent in April, as well as goods that get to market in a diesel-fueled truck or on a boat. Grocery costs rose 2.9 percent since last April, 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 percent 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 last 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 percent over the year, up from an annual increase of 3 percent 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 percent since last April. 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 percent 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 percent over the next year, the highest expectation since last April, after Mr. 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 about 11 percent, 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 Mr. Trump’s handling of the economy.

 

Compounding their dissatisfaction, income growth has slowed. As of last month, when average hourly earnings rose 3.6 percent 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,” Mr. Hodge said.