Consumer prices in April were up 3.8 percent, up from 3.5 percent in March and 2.8 percent in February. The number is the highest experienced since May 2023. The core PCI, which excludes energy and food prices, is up 3.3 percent for the month. The Fed’s targeted inflation rate is 2 percent, close to half of what was just reported.
The key driver is the war in the Middle East which has pushed up fuel prices, and high energy costs are trickling through every aspect of the economy. Consumer confidence has fallen to an all-time low, as people struggle to pay bills, and wage hikes have been eroded by inflation. Personal savings are at one of the lowest levels in 20 years.
Earlier in the year, the central bank predicted one interest rate cut in 2026, but that is in jeopardy given the rise in inflation. Economists are still hopeful for a rate cut in December, with a 40 percent probability. If the Strait of Hormuz can be opened soon, the likelihood of a rate cut will rise.