As the Iran war tensions increase, inflation continued to put pressure on American consumers in April. New data released by the Commerce Department on Thursday showed that the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, rose 0.4% in April from the previous month.
Core inflation, which excludes food and energy prices, increased 0.2% during the month and 3.3% compared to a year ago. Economists had expected the annual core reading to remain at 3.3%, however, the monthly increase came in slightly softer than forecasts. On a yearly basis, inflation stood at 3.8%. Meanwhile, inflation remains well above the Federal Reserve’s 2% target.
Iran war pushes up energy and shipping costs
A major reason prices are staying high is the ongoing conflict involving Iran, which has disrupted global trade and energy supplies.
The war has affected shipping through the Strait of Hormuz, one of the world’s most important oil routes. This has pushed up oil prices and created supply chain disruptions across industries, affecting goods such as fertilisers, aluminum and consumer products.
The impact has already reached American consumers. According to data from the U.S. Energy Information Administration, average retail gasoline prices jumped 12.3% in April. Gas prices have surged more than 50% since the conflict began at the end of February.
As reported by Reuters, economists say the rise in fuel and transportation costs is making everyday goods more expensive and adding fresh pressure on inflation that was already elevated because of President Donald Trump’s sweeping import tariffs.
Federal Reserve likely to stay cautious
The latest inflation numbers are expected to keep the Federal Reserve cautious about cutting interest rates anytime soon. Financial markets now expect the Fed to hold its benchmark interest rate in the 3.50% to 3.75% range. Minutes from the Fed’s April policy meeting showed that some policymakers are even open to raising rates again if inflation remains stubbornly high. Fed officials closely track the PCE inflation index because they believe it gives a total picture of consumer spending patterns compared to other inflation measures.
Jobless claims edge higher
Fresh labour market data also pointed to some softening in employment conditions. Initial jobless claims for the week ended May 23 rose to 215,000, slightly above expectations. Continuing claims, which reflect the number of people still receiving unemployment benefits, increased to 1.786 million.
Although layoffs remain relatively low overall, economists say hiring has slowed in several industries. Young graduates and first-time job seekers are facing a particularly difficult job market. The unemployment rate is expected to remain steady at 4.3% for May.
Durable goods orders provide one bright spot
One positive sign came from the manufacturing sector. Orders for durable goods, products meant to last several years, such as aircraft, computers and appliances jumped 7.9% in April, far above expectations. Excluding transportation equipment, orders still increased a solid 1.1%.
The combination of high inflation, slowing growth and geopolitical tensions is creating fresh uncertainty for the US economy. Though, inflation showed some improvement in April, prices remain high enough to strain household budgets. Rising gasoline prices, slowing income growth and concerns about jobs are making consumers increasingly cautious. Economists say much now depends on whether global tensions ease and whether inflation continues to cool in the coming months.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.
