Inflation hits highest level in nearly 3 years, Fed's preferred gauge shows
Summary
Inflation in the U.S. rose to 3.8% in April, the highest level since May 2023, mainly due to increased gasoline prices caused by the conflict involving Iran. The Federal Reserve may face pressure to raise interest rates to control inflation, but markets currently expect rates to stay the same next month.Key Facts
- Inflation increased for the second month in a row, reaching 3.8% in April compared to last year.
- The Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred inflation measure, rose from 2.8% in February.
- The Iran war caused a closure of the Strait of Hormuz, disrupting global oil supply and pushing gas prices higher.
- Gasoline prices rose by 48%, reaching an average of $4.42 per gallon since the conflict started on February 28.
- The U.S. savings rate dropped to 2.6%, its lowest since 2022, showing consumers have less money to save.
- The Federal Reserve’s benchmark interest rate currently stands between 3.5% and 3.75%.
- Futures markets expect the Fed to keep interest rates steady next month but see over a one in three chance of a rate increase before the end of the year.
- The conflict in Iran has caused one of the largest oil price shocks in recent history.
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