US April CPI Rises by 3.8% YoY, Higher than Expected, Fastest Growth in Three Years

The year-on-year increase in the US CPI rose to 3.8% in April, reaching a new high since May 2023, and core inflation also exceeded expectations.

The Bureau of Labor Statistics (BLS) announced on Monday that the overall CPI increased by 0.6% month-on-month in April, in line with market expectations, with the year-on-year increase expanding to 3.8%, slightly higher than the expected 3.7%, marking the highest level in nearly three years. Core CPI (excluding food and energy) rose by 0.4% month-on-month, higher than the expected 0.3%, and rose to 2.8% year-on-year, the highest since September 2025.

Energy and food prices are the main components driving overall inflation, with core service prices also rising in tandem, which market analysis suggests partly reflects the pass-through effect of energy costs to downstream sectors.

The ongoing tension in Iran has driven up energy and aviation and transportation costs, while the rise in memory chip prices – stemming from increased competition in AI computing power – poses additional pricing pressure.

Core inflation exceeding expectations, market divergence emerges

Previous March data had shown core CPI lower than expected, leading the market to be somewhat optimistic about the inflation trajectory. The rebound in April core data打破了这一预期, and reignited concerns about whether price pressures are spreading more broadly.

It is worth noting that this month's data was also affected by a technical factor: BLS corrected the statistical bias in the rent and housing sub-items caused by the government shutdown last October, contributing to a certain upside impact on the month's year-on-year readings.

Consumer confidence hits historical low

The high oil prices are eroding consumer confidence in the economy. The University of Michigan's initial May Consumer Sentiment Index fell to 48.2, the lowest record in history. Zhou Annie, the person in charge of the survey, said: "Until the supply disruption issues are completely resolved and energy prices fall, the situation in the Middle East is unlikely to have a substantial positive impact on consumer confidence."

The Federal Reserve is highly likely to stand pat in June

Against the backdrop of inflation exceeding expectations, the market's expectations for the Federal Reserve's policy path are quite clear. CME FedWatch data shows that traders expect more than a 90% probability that the Federal Reserve will keep interest rates unchanged in mid-June. This will also be the first policy meeting chaired by the new Federal Reserve Chairman Kevin Warsh – Warsh is expected to be confirmed by the Senate this month to succeed Powell, who is about to step down.

Stephen Juneau, Senior Economist at Bank of America Global Research, previously said that persistently rising inflation will squeeze the growth of real income, weakening residents' purchasing power. From the April data, this concern is becoming a reality.