April CPI seen at 3.7%, highest since 2023, on Iran oil spike

The April consumer price index is expected to show US inflation accelerating to 3.7% year-on-year when the Bureau of Labor Statistics releases the data on Tuesday morning, a reading that would mark the fastest price growth since September 2023 and extend a run of inflation figures distorted by the oil shock that followed military strikes on Iran in March.

A consensus of economists surveyed by Reuters and CNBC points to a 0.6% increase from March, which itself delivered a 0.5% monthly gain. Core CPI, which strips out volatile food and energy costs, is projected to rise 2.7% from a year earlier, a more contained figure that nevertheless sits well above the Federal Reserve’s 2% target. The Iran-driven energy spike is filtering into the broader price basket.

“People are now realizing that the pitch they got about lowering the cost of goods and services is a fairy tale,” said Brian Bethune, an economics professor at Boston College. That pain is concentrated in two categories households cannot avoid: gasoline and groceries. Oil prices surged past $100 a barrel in March after US-led strikes on Iranian nuclear facilities, and while crude has since pulled back from those peaks, the pass-through to pump prices and transportation costs is only now showing up in the data that matters most to households and to the central bank.

Sung Won Sohn, a finance and economics professor at Loyola Marymount University, framed the strain in terms voters and policymakers alike will recognize. “They live in higher gasoline prices, they live in higher grocery prices, and they are getting hurt,” he said.

If confirmed, the 3.7% headline figure would be the highest reading in 31 months — a reversal of the steady disinflation that characterized much of 2024 and early 2025 before geopolitical shocks reset the trajectory. The report lands in a political environment where inflation has already re-emerged as a dominant concern. Lou Crandall, chief economist at Wrightson ICAP, noted in a client preview that the sequential readings on services inflation will be the more consequential data point for markets, because the energy component, while dramatic, tells a story that is already priced in. The open question, Crandall argued, is whether the Iran shock is accelerating a services-driven inflation dynamic that had already proven stubborn through the first quarter.

Fed officials enter the Tuesday release with the policy rate at 4.25% to 4.50% and a market that has priced out any near-term cut. The March meeting minutes showed unease about the path of inflation even before the full effect of the oil spike registered in the data. A 3.7% headline will harden the committee’s wait-and-see posture, and rate futures on Monday assigned negligible probability to a move at the June meeting and roughly even odds of a single quarter-point reduction by year-end.

Households, meanwhile, face a squeeze that the aggregate numbers can obscure. The Bureau of Labor Statistics most recent real earnings report showed average hourly wages rising 3.3% year-on-year in March — meaning that even a 3.7% April CPI would leave the typical worker marginally behind on purchasing power for the fourth consecutive month. Food-at-home inflation has been a persistent sore spot within the index, rising at a 2.8% annual clip in March even before the full fuel-cost passthrough hit the supply chain. Transport and logistics firms began passing through higher diesel surcharges in April, and those costs typically reach the supermarket shelf with a lag of four to six weeks — suggesting the category could deteriorate further in the May and June prints.

Energy alone accounts for roughly 7% of the CPI basket, but its month-to-month swings have an outsized effect on the headline because they are both large and volatile. Gasoline prices nationally averaged $4.17 per gallon in April, according to AAA data, up from $3.62 in February before the Iran strikes reshaped the crude market. That 55-cent jump in two months is the steepest since the summer of 2022, when Russia’s invasion of Ukraine sent global energy markets into a tailspin.

Shelter, the single largest component of the CPI at roughly a third of the index, has been decelerating gradually but remains elevated by historical standards. The owners’ equivalent rent measure rose 4.1% year-on-year in March and is expected to show only a marginal decline in the April print. Because shelter data lags real-time rent indicators by six to 12 months, the component acts as a brake on disinflation that the Fed cannot easily accelerate.

Bond markets have absorbed the inflation trajectory with a notable shift in rate expectations: the two-year Treasury yield, the maturity most sensitive to Fed policy, settled at 4.58% on Monday, up roughly 80 basis points from its February low. Equity markets have held up better than the bond market’s signals would suggest, with the S&P 500 down about 4% from its April peak but still up 8% year-to-date — a divergence that reflects both corporate-earnings resilience and the assumption that the oil shock will prove temporary.

But whether that assumption holds depends on events in the Strait of Hormuz, through which roughly a fifth of global oil supply transits, more than it does on any single data point from the BLS. The April CPI, for all its headline shock value, is in that sense a lagging indicator — a snapshot of prices already paid, not a forecast of where they go next.

Tuesday’s release at 8:30 a.m. Eastern is the second-to-last inflation reading before the Federal Open Market Committee’s June 17-18 meeting, at which updated Summary of Economic Projections will give the first official glimpse of how the rate-setting committee is recalibrating for an economy where inflation is rising again.