Trending 
The Iran war has pushed the United States (US) inflation rate to 3.8%, with consumers feeling the impact of the ongoing Middle East escalation.
The cost of gasoline and groceries increased, pushing the consumer price index (CPI), which measures price changes over the past 12 months, to 3.8%. That is the highest level since inflation hit 4% three years ago.
The Bureau of Labour Statistics said nearly half of the increase was due to surging energy costs, though housing and food prices also played a major role.
The US-Israel war in Iran has effectively closed the key Strait of Hormuz shipping lane, causing oil prices to spike, and that has made gasoline more expensive in the US. According to the AAA motoring group, the national average price for a gallon of unleaded gas is now $4.50, the highest since July 2022.
April’s inflation figure rose from 3.3% in March, making it very unlikely that the Federal Reserve will cut interest rates this year. Isaac Stell, an investment manager at Wealth Club, said the inflation increase even leaves interest rate hikes “firmly on the table”.
This update comes just days before Kevin Warsh, appointed by President Donald Trump, is set to replace Jerome Powell as head of the US central bank. Stell said Warsh will have “little room for manoeuvre” and may be forced to take a more cautious approach.
Trump had clashed with Powell over his refusal to cut interest rates, which the president hoped would boost the economy. Trump has made it clear he expects Warsh to push for rate cuts. The rising inflation also creates a challenge for Trump and Republicans ahead of November’s midterm elections. Trump’s 2024 re-election campaign focused heavily on his promise to lower inflation.
On Tuesday, Trump called the increase “short-term” and said Americans would understand his priority: keeping Iran from developing a nuclear weapon. He also noted that inflation remains lower than under his predecessor, Joe Biden, who saw it peak at 9.1% in June 2022.
Danni Hewson, head of financial analysis at AJ Bell, said: “Americans are supremely sensitive to the price of gasoline. They also elected Donald Trump on the promise that he would bring down prices. With the mid-terms hurtling towards us, the fact that the weekly shop is getting more expensive could once again be political kryptonite to the governing party, only this time that party has changed colour.”
Air fares and clothing also went up in the year to April, while new car prices fell slightly. The closure of the Strait of Hormuz has caused jet fuel prices to spike, and US airlines, which do not hedge their fuel costs, have quickly passed those increases to customers. The average airfare rose 20.7% in April.
For the first time in three years, Americans’ paychecks are no longer growing faster than prices. While prices rose 3.8% over the year to April, average wages grew only 3.6%. US stock markets opened lower on the news. The S&P 500 fell 0.6%, and the Dow Jones Industrial Average dropped 0.7%.
