United States: Energy Continues to Support Inflation

As expected, energy once again contributed to higher inflation, in line with the prevailing consensus among forecasters. This component alone accounted for more than 40% of the increase in CPI in April. Fuel prices in particular surged by 29.2% year over year. That said, we believe the bulk of the rise in refined petroleum products and crude oil prices is now behind us. Energy should therefore continue to provide strong support to inflation over the coming months, although its contribution is expected to gradually ease. The situation nevertheless remains fragile. Heightened volatility in the Middle East could trigger another spike in energy prices.

Inflation excluding energy and food remained more moderate, despite accelerating to 2.8% year over year in April. This increase was driven primarily by shelter, where prices rose by 3.3%, following a 3.0% increase in March. During last year’s government shutdown, the Bureau of Labor Statistics underestimated rent inflation, which mechanically understated its true level. The data released today reflect a normalization of this distortion.

On the goods side, CPI declined by 0.2% month over month, while posting a 1.1% increase on a year‑over‑year basis. This decline is encouraging. For now, the energy shock does not appear to have spread to other categories beyond its immediate impact on transportation costs. However, caution remains warranted. Energy price increases typically take several months to feed through to production costs, and even longer to be partially passed on to CPI. Goods price trends should therefore be closely monitored to assess the extent of this pass‑through.

Overall, the data released this morning are unlikely to materially alter the outlook for the Federal Reserve (Fed). At present, there is little evidence that the surge in energy prices is leading to a pronounced acceleration in core inflation, which excludes food and energy. Against this backdrop, the Fed is expected to maintain its current policy stance. Even if an agreement between Iran and the United States appears increasingly likely, the situation remains unpredictable. Should oil prices remain elevated for an extended period, inflationary pressures could broaden and economic conditions deteriorate. That said, given the recent resilience of the US economy, this scenario remains a risk rather than a baseline assumption.