U.S. consumer prices are likely to have climbed solidly in April, marking a second straight month of notable increases and producing the largest year-on-year rise in inflation in more than two years, according to consensus forecasts ahead of the Labor Department's Consumer Price Index release.
Economists expect the CPI to have increased 0.6% in April after a 0.9% jump in March. Estimates in the Reuters survey ranged from a 0.4% gain to a 0.9% rise. On an annual basis, the CPI is projected to have advanced 3.7% in the 12 months through April, up from 3.3% in March. If realized, that would be the steepest year-on-year increase since September 2023.
Two principal forces are expected to account for much of the strength in the April reading. First, energy prices have moved higher amid the U.S.-Israeli war with Iran, pushing up costs for gasoline, diesel and jet fuel. Oil climbed above $100 a barrel in March following strikes against Iran and subsequently pulled back but remained at still-high levels after a ceasefire in early April. Gasoline prices are expected to have contributed heavily to the monthly increase after a record surge in March.
Second, the Bureau of Labor Statistics is anticipated to include a one-time adjustment to rent and owners' equivalent of rent (OER) measures. The BLS divides its rent survey into six rotating panels, each sampled every six months. Because the 43-day federal government shutdown last year prevented data collection in October, the BLS used a method called carry-forward imputation to fill the gap for rent and OER, which had the effect of artificially lowering those indexes. The April report should include hard data for that portion of the shelter panel, creating a catch-up effect that will lift the shelter components of core inflation.
Lou Crandall, chief economist at Wrightson ICAP, said the special housing data factor should add about a tenth of a percentage point to the increase in the core CPI in April. "The April report will include hard data for that part of the shelter panel, which should lead to a significant catch-up effect," he said.
Excluding food and energy, the so-called core CPI is forecast to have risen 0.3% in April, with some probability of rounding up to 0.4%. The core CPI had gained 0.2% in March. On a 12-month basis, core CPI inflation is expected to have increased 2.7% in April after a 2.6% rise in March.
Underlying inflation is also likely to receive a boost from healthcare costs after a surprise decline in that category in March. Core goods prices, by contrast, are expected to remain muted. Most economists surveyed said the pass-through from tariffs into consumer prices had likely ended after the U.S. Supreme Court struck down the sweeping tariffs in February.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, noted that retailers are unlikely to pass on savings from lower effective tariff rates immediately, but the pressure to raise prices further has eased. "It’s unlikely that retailers will pass on savings they are now seeing following the decline in the effective tariff rate in February, after the Supreme Court’s ruling, but the pressure to raise prices further has eased," he said.
The CPI outlook follows other recent data that signaled strength in the labor market, including a bigger-than-anticipated increase in nonfarm payrolls in April reported last week. Financial markets have responded by pricing expectations that the Federal Reserve will hold its policy rate unchanged through 2027, maintaining the federal funds rate in the 3.50% to 3.75% range set last month.
Higher readings for inflation, particularly if they come in consecutive months, would carry political consequences. Back-to-back strong inflation readings would escalate political risk for President Donald Trump and his Republican party ahead of November's midterm elections. Trump won re-election in 2024 in large part because of his promise to reduce inflation, but Americans have soured on his handling of the economy and many blame him for the pain at the pump.
"People are now realizing that the pitch they got about lowering the cost of goods and services is a fairy tale," said Brian Bethune, an economics professor at Boston College. "They were basically treading water with their nose just above the surface, now they are being pulled down below the surface. There is no air to breathe."
Energy-driven price pressures are expected to transmit further into the broader economy in the months ahead, economists say, producing second-round effects on goods and services costs. Food prices were also forecast to have accelerated in April after registering an unusually flat reading in March. Economists cited higher energy costs and fertilizer shortages linked to shipping disruptions in the Strait of Hormuz as factors that could push food inflation higher in coming months.
Even with the anticipated April increases, policymakers and market participants will be watching subsequent data to determine whether inflation's recent uptick reflects temporary technical adjustments and energy swings or a more persistent reacceleration. For now, the combination of stronger-than-expected payrolls, higher fuel prices and the rent data correction has strengthened the case that the Fed can remain on hold until more definitive trends emerge.
Implications for markets and sectors
- Energy and transportation costs are likely to feel immediate pressure from higher oil and gasoline prices.
- Consumer-facing sectors, particularly retail and services with high fuel or food exposure, could see margin and demand impacts as households face higher spending on essentials.
- Financial markets and interest-rate-sensitive sectors will monitor inflation data closely for indications on the Fed's timing and policy path.