U.S. inflation accelerated at its fastest rate since 2023 during April, propelled by higher energy prices linked to ongoing conflict in Iran. The steep rise has reinforced expectations that the Federal Reserve will maintain its current interest rate policy through the coming year.
The latest report from the Commerce Department’s Bureau of Economic Analysis showed the Personal Consumption Expenditures (PCE) Price Index jumped 3.8% over the 12 months ending in April. This annual increase marked the sharpest gain since May 2023 and matched analysts’ predictions. In March, the index had posted a 3.5% advance on an annual basis. Month-over-month, PCE inflation grew 0.4% in April after a 0.7% increase in March.
Core PCE, which excludes food and energy and serves as the Federal Reserve’s favored inflation measure, rose 3.3% year-over-year. Adjusted for price changes, consumer spending registered a modest 0.1% gain in April, falling short of projections for the second quarter.
Rising inflation is placing pressure on household finances, restricting disposable incomes and potentially weighing on broader consumer spending and economic expansion this year. Disposable personal income, when adjusted for inflation, declined for the third consecutive month in April.
In the labor market, new claims for unemployment benefits increased by 5,000 to 215,000 for the week ending May 23, the highest level since mid-April 2026. The number of continuing claims climbed to 1.79 million in the previous week.
The Federal Reserve closely monitors the PCE inflation data in pursuit of its 2% target. Financial market participants largely anticipate that the central bank will keep its main interest rate between 3.50% and 3.75% until at least 2027. Minutes from the Fed’s April meeting indicated that more policymakers are considering additional rate increases if inflation persists.
