US Inflation Climbs to 3.8% as Energy Shock Pushes Prices Higher and Real Wages Slip for First Time in Three Years

Consumer prices in the United States rose sharply again in April, with the latest data from the United States Department of Labor showing the Consumer Price Index increased 3.8% compared with April 2025. The monthly reading also showed prices climbing 0.6% from March to April, a slowdown from the 0.9% increase recorded between February and March.

Energy costs were a major driver of the increase, with petrol prices rising 5.4% over the month. On a year-over-year basis, petrol is now up more than 28%. The American Automobile Association reported that the average price of a gallon of petrol exceeded $4.50 (€3.84) on Tuesday, roughly 44% higher than the same period a year earlier.

Even as headline inflation accelerated, so-called core prices—excluding volatile food and energy—rose 0.4% from March and 2.8% from April 2025, suggesting more moderate underlying price pressures for now. Grocery prices also increased 0.7% month-on-month after a slight decline the previous month, with higher meat costs cited as a key factor.

Inflation has continued to remain above the Federal Reserve target of 2%, despite a gradual decline since its peak of 9.1% in June 2022. That earlier surge had been driven by pandemic-era supply chain disruptions and an energy shock following Russia’s full-scale invasion of Ukraine.

Recent price pressures have been intensified by geopolitical tensions involving the 10-week Iran conflict. According to the report, the United States and Israel launched attacks on Iran on 28 February, after which Tehran responded by striking neighbouring regions and restricting access to the Strait of Hormuz, a critical passageway through which around one-fifth of global oil and liquefied natural gas flows. Energy prices surged in response.

The inflation environment has complicated expectations for monetary policy. The Federal Reserve, which had previously been expected to begin cutting interest rates in 2026, has taken a more cautious stance as it assesses whether elevated energy prices will spill over into broader inflation. US President Donald Trump has criticised the central bank and its outgoing chair Jerome Powell for not lowering rates more aggressively to support growth. Meanwhile, Kevin Warsh, described as Trump’s preferred successor to Powell, is expected to face Senate confirmation this week, though it remains uncertain how he would approach interest rate policy under current conditions.

Underlying strain is also beginning to show in real incomes. In April, average hourly wages fell 0.3% year-over-year after adjusting for inflation, marking the first such decline in three years. This suggests that price increases are now outpacing wage gains for many workers.

Economists and industry observers are increasingly warning of broader economic effects. Heather Long, chief economist at Navy Federal Credit Union, described the situation as a tightening financial squeeze, saying: “Inflation is the key drag on the US economy now.”

She added: “There is a real financial squeeze under way. For the first time in three years, inflation is eating up all wage gains,” and continued, “This is a setback for middle-class and lower-income households, and they know it. They are having to cut back on spending and stretch every dollar.”

Corporate data is also reflecting weaker demand conditions. Appliance manufacturer Whirlpool Corporation reported a nearly 10% drop in revenue in its most recent quarter and said that the ongoing conflict had triggered what it called a “recession-level industry decline” that has weakened consumer confidence.

Consumers are beginning to adjust their spending behaviour in response. Grace King, a 31-year-old administrative assistant from Ames, Iowa, described cutting back sharply on discretionary purchases as prices rise across essentials like food and fuel. She previously spent around $200 (€170) per month on clothing, largely through online shopping platforms, but has now reduced that spending significantly.

“There's pressure basically everywhere from the groceries that I buy to the gas to fill up the tank,” she said. “I've severely cut back on my frill spending.”

By fLEXI tEAM