NEW YORK, May 12 (Reuters) – U.S. consumer prices rose at a brisk clip for a second straight month in April, posting the largest annual increase in inflation in nearly three years and further bolstering expectations the Federal Reserve will keep interest rates unchanged for a while.
The Consumer Price Index increased 0.6% last month after surging 0.9% in March, the Labor Department’s Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast the CPI rising 0.6%.
In the 12 months through April, the CPI advanced 3.8%. That was the biggest year-on-year increase since May 2023 and followed a 3.3% rise in March. Economists had forecast a rise of 3.7%.
Excluding food and energy, the CPI climbed 0.4% last month, partly lifted by a one-time adjustment to rent measures after last year’s shutdown of the federal government prevented data collection in October.
MARKET REACTION:
STOCKS: U.S. stock indexes were lower, with the Nasdaq posting a 0.8% decline at the open and the S&P 500 down 0.4%
BONDS: Treasury prices fell, sending yields higher. The 2-year Treasury yield rose 3 basis points to 3.98%, while the 10-year Treasury yield rose 4 basis points to 4.45%.
FOREX: The dollar index rose 0.3% to 98.29.
COMMENTS:
JAMES MCCANN, SENIOR ECONOMIST, INVESTMENT STRATEGY AT EDWARD JONES, BOSTON:
“American households continue to feel the brunt of surging energy costs, adding to the deluge of inflation they have weathered since the pandemic. Moreover, with the Strait of Hormuz still effectively shuttered, the risk that we are not past the peak of these price pressures is rising.
“The good news is that the economy looks resilient to this price shock so far. Many consumers have benefited from tax refunds this year, hiring has picked up from near stagnant rates in 2025 and businesses are generating robust profit growth. There are limits to these buffers, but we expect they should provide some reassurance that the economy can weather this shock.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“This report suggests that unless energy prices begin to move much lower from present levels, that inflation is likely to accelerate to even higher heights in the coming months, which is obviously negative for the bond market. And certainly, it means that the new Fed chairman will have his hands tied to the point that he’s not likely to lower rates anytime this year.
“As long as energy prices continue to stay at these levels and move higher, then the chances of energy inflation spreading to other components of the economy increases. And I think that’s the greatest fear that we have out there right now.
“So far there hasn’t been any really pullback by the consumer, but that’s not likely to last if energy prices continue to move higher like this, because don’t forget, energy prices affect utilities, right? You’ll be paying more for your utility bills, and you’ll be paying more for other products that are related to increasing oil prices. And so that eventually is going to cut sharply into the consumer’s pocketbook. And that means the possibility of the economy stalling increases.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“CPI came in a little hotter than expected, but we should have been expecting the unexpected with tariff induced inflation passing the baton to oil induced inflation.
“With beef, tomato, coffee, and many other line item inflation readings, you can draw a straight line to weather or government policies more than to monetary policy.”
MATT BUSH, US ECONOMIST, GUGGENHEIM INVESTMENTS, NEW YORK:
“So far, not a big reaction from markets. I think that reflects some mixed trends in the data that overall net out to not much of a changed picture on the inflation front.
“The biggest thing we’re seeing is multiple shocks hitting the inflation data and those are all heading in different directions. On the goods side, we do seem to see tariff effects fading out of the inflation data. Core goods inflation was flat over the month. So that’s some good news that the tariff pass-through process may be winding down.”
“At the same time, though, we obviously have this new shock from rising energy costs. You see that more so in the headline inflation data with gasoline prices surging. But you see it in the core inflation data, too. Airfares saw a pretty big rise. We think more of that is likely to show up in coming months as jet fuel costs are passed into airline prices.”
“And then a third shock hitting the data is spillovers from all the AI spending. For example, you saw computer software and accessory prices rise 5% over the month, not annualized. That’s a pretty big increase. It’s a bigger deal for the core PCE data, given it has a much larger weight in that series. And so, I think that’s something that’s going to offset some of the slowdown from tariff pressures, particularly in the core PCE inflation data, which the Fed’s going to pay more attention to.
“I think this data reinforces the Fed’s wait-and-see approach. The labor market stabilization means they’re in no hurry to reduce rates, and they can focus on the upside risks from inflation.”
TIM URBANOWICZ, CHIEF INVESTMENT STRATEGIST, INNOVATOR ETFS FROM GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“Inflation is likely to take a back seat over the coming months as investors remain focused on earnings, economic growth and the AI-driven capex cycle. The Fed has been clear that it is willing to look through any temporary inflation spike tied to the Iran conflict, and that remains the key consideration for investors in the near term. Markets had already priced out rate cuts for 2026 heading into the report, and nothing in the data suggests rate hikes are back on the table. As long as the 10-year Treasury yield remains contained below 4.5%, we do not see these levels as a meaningful headwind for equities.”
ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK:
“Energy prices exploded because of the whole situation in the Middle East. This is the first inflation report where we’re seeing consumer prices directly being impacted… How long will oil prices stay high? Is it going to be sticky? Until we see oil prices come down, inflation is here to stay. That is a concern for the market and, more importantly, for the Fed.”
GEORGE BROWN, SENIOR ECONOMIST AT SCHRODERS, LONDON:
“U.S. inflation is close to peaking, but that does not mean relief is imminent. With oil prices still unpredictable, the danger is that a temporary energy shock morphs into something more persistent.
“With rate cuts now unlikely in 2026, the policy debate has shifted to whether the Fed can afford to sit tight or is ultimately pushed into tightening. Fed Chair nominee Kevin Warsh may advocate looking through a one-off energy shock, but other parts of the Fed appear less relaxed about the risks.”
DOUG BEATH, GLOBAL EQUITY STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE
“It’s a little bit higher than the survey so far. It’s very early. The bond market hasn’t reacted too strongly. So we’ll see how the day goes, but I do think it will be interesting. It is above expectations. We believe the financial markets and commodities have been a little slow to appreciate the economic damage that is building with higher prices, oil prices, raw materials, all those things that could accelerate global inflation.
“April had the highest S&P 500 returns since 2020. Obviously, earnings continue to exceed expectations, AI, all those things. But I do think this, even though it’s a little bit higher than expected, it could be more important because of the fact the negotiations are still in limbo. We’ll see how the rest of the day goes by. But I think this will be more important going forward. The focus on inflation will be an issue, particularly as these US-Iran negotiations continue and we don’t have any finalization on this.”
(Reporting by Lucia Mutikani, Rashika Singh, Karen Brettell, Stephen Culp, Chuck Mikolajczak, Utkarsh Hathi, Akriti Shah, Suzanne McGee, Caroline Valetkevich; editing by Colin Barr)
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