April inflation is expected to stay hot after energy prices jumped during the Iran war. Forecasts call for CPI to rise 0.59% in April from March and 3.7% from a year earlier, after a 0.9% monthly increase and 3.3% annual rate in March.
Gas is doing a lot of the work. Economists expect rising gas prices to be a major driver of headline inflation, with one UBS economist looking for a sharp 0.6% increase in April CPI. Prices at the pump have climbed more than 50% since the US- and Israeli-led war on Iran started in late February and recently topped $4.50 a gallon on average.
Core stays sticky
Core CPI, which excludes food and energy, is expected to rise 0.30% for the month and 2.7% from a year earlier. Morgan Stanley’s Matt Hornbach called Tuesday’s CPI a “spicier” set of figures because CPI, PPI, and import prices all feed into the PCE inflation forecast watched by the Federal Reserve.
Housing could add another push. A government-shutdown data issue left October owners’ equivalent rent recorded as zero change, and the April rent data will be compared against last April instead of last October. Bank of America expects that update to produce a firmer rent and OER reading.
Consumers are already showing the strain. A University of Michigan gauge of sentiment fell to a fresh record low, with concerns centered on household finances and buying conditions from inflation. Kraft Heinz and McDonald’s are also apprehensive about budget-constrained shoppers, and Thursday’s retail sales data will show how higher gas prices are hitting spending momentum.
The CPI report lands Wednesday at 8:30 a.m. EDT. Fed officials have indicated they want clarity on how higher energy costs affect inflation before making any near-term rate changes.
