U.S. consumer prices climbed sharply again last month as the 10-week war with Iran pushed energy prices higher. The Labor Department reported Tuesday that its consumer price index rose 3.8% from April 2025. On a month-to-month basis, April prices rose 0.6% from March as gasoline prices rose 5.4%.
Core Inflation Remains Subdued
Excluding volatile food and energy costs, so-called consumer core prices rose 0.4% last month from March and 2.8% from April 2025. These relatively modest readings suggest that the energy price burst is not spilling over significantly into other prices yet.
Historical Context
Inflation had been dropping more or less steadily since peaking with a 9.1% year-over-year spike in prices in June 2022, a surge caused by supply chain bottlenecks at the end of COVID-19 lockdowns and an energy price shock following the Russian invasion of Ukraine. However, inflation remained above the Federal Reserve's 2% target.
Then, the United States and Israel attacked Iran on Feb. 28, and Tehran responded by shutting off access to the Gulf of Hormuz, through which a fifth of the world's oil and liquefied natural gas passes. Energy prices rocketed in response.
Federal Reserve's Stance
The Fed, which had been expected to cut its benchmark interest rates in 2026, has turned cautious as it waits to see how long the conflict lasts and whether higher energy prices spill over into other products, causing a broader inflationary outbreak.
President Donald Trump has lambasted the Fed and its outgoing chair, Jerome Powell, for refusing to slash rates to boost the economy. Kevin Warsh, the president's hand-picked choice to succeed Powell, is expected to be confirmed by the Senate this week. However, it is unclear whether Warsh would pursue lower rates given the uncertainties arising from the war, or whether he could persuade his colleagues on the Fed's rate-setting committee to go along if he tried.
Impact on Consumers and Businesses
Americans are getting squeezed by gasoline prices that have shot past $4.50 a gallon. Some companies are also starting to feel the pain. For example, Whirlpool, which makes KitchenAid and Maytag appliances, reported last week that revenue dropped nearly 10% in its most recent quarter and said that the war has caused a "recession-level industry decline" that has undermined consumer confidence.
