America’s inflation firming as Iran war pushes energy prices

US inflation increased at its fastest pace in three years in April, driven by higher energy prices amid the war with Iran, and cementing economists’ views that the Federal Reserve could hold interest rates unchanged well into next year.

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A customer shops at a grocery store in Chicago, Illinois, US.

(REUTERS)

Surging price pressures are eroding household income and could restrain consumer spending and economic growth this quarter. Income at the disposal of households after adjusting for inflation dropped for a third straight month in April, other data showed on Thursday. Given the soaring cost of living, Americans are growing frustrated with President Trump's handling of the economy. A Reuters/Ipsos survey last week showed Trump's presidential approval rating fell to nearly its lowest level since he returned to the White House, hit by a drop in support among Republicans. Trump won the 2024 presidential election in large part because of his promise to lower inflation.

Inflation threatens his Republican Party’s congressional majority in the November mid-term elections.

“The inflation picture is becoming increasingly uncomfortable for the Fed,” said Olu Sonola, head of US economics at Fitch Ratings. “Price pressures are likely to persist over the next few months, and while the Fed cannot fix a supply shock, it cannot ignore one that is feeding into underlying inflation.” The personal consumption expenditures price index jumped 3.8% in the 12 months through April, the largest rise since May 1993, the Commerce Department's Bureau of Economic Analysis said. PCE inflation advanced by an unrevised 3.5% in March.