US consumer prices hit 3-year high as energy costs surge from Iran conflict
Andy Hirschfeld
US consumer prices rose 3.8% year-over-year in April 2026, the highest since May 2023, driven by a 28.4% surge in gasoline prices amid the US-Israel conflict with Iran. Energy costs pushed up airline fares and food prices, while the White House called the increases temporary. Economists expect the Fed to hold interest rates steady through the rest of the year.
US consumer prices rose for the second consecutive month, posting the largest annual gain in nearly three years, as energy costs surged following the US-Israel conflict with Iran.
According to the Consumer Price Index (CPI) report released by the US Bureau of Labor Statistics on May 11, the CPI rose 0.6% month-over-month in April and 3.8% year-over-year — the highest level since May 2023. In March, the annual increase was 3.3%.
The main driver was a 17.9% jump in energy prices over the past 12 months, with gasoline surging 28.4% compared to a year ago and 5.4% from the previous month. The American Automobile Association (AAA) said the average gasoline price now stands at $4.50 per gallon (3.78 liters), up from $2.98 per gallon in late February when the US and Israel began their offensive against Iran.
Higher energy costs also pushed airline fares up 2.8% month-over-month due to expensive jet fuel. Spirit Airlines, after 34 years of operations, ceased business in early May, citing soaring fuel costs due to "recent geopolitical events" in a court filing.
The White House described the current price increases as temporary. Spokesman Kush Desai said, "President Trump has always been clear about the temporary disruptions caused by Operation Epic Fury." However, economists predict the conflict with Iran will keep prices elevated.
Food prices rise sharply
Grocery prices rose 0.7%, with meat, poultry, fish, and eggs up 2.7%; beef increased 2.7%. Fruits and vegetables rose 1.8%; tomatoes surged nearly 40% year-over-year and more than 15% month-over-month. Coffee prices climbed 18.5% compared to a year ago.
In contrast, egg prices fell 39% year-over-year but rose 1.5% from March. The White House also highlighted that smartphone prices dropped 12% year-over-year, though they rose 1% month-over-month. Smartphones are exempt from the tariffs President Trump imposed last year.
Clothing prices rose 0.6%, electronics saw a similar increase, and bedroom furniture and toys each rose 0.8%. On the other hand, healthcare costs fell — drug prices declined 0.4% month-over-month and 0.5% year-over-year, while prescription drug prices were down 0.9%.
Stock markets slide
On Wall Street, major indices all fell. The Nasdaq dropped 1.4%, the Dow Jones fell 0.6%, and the S&P 500 declined 0.8% in midday trading.
The CPI report was released as Federal Reserve Chair Jerome Powell's term ends this week, to be succeeded by Kevin Warsh. With rising inflation and a stable jobs market, the Fed is expected to keep interest rates unchanged for the rest of the year, despite pressure from President Trump.
Michael Pearce, chief economist at Oxford Economics, said, "The stronger economy and persistent inflation will keep the Fed on hold — we now expect the next rate cut in December rather than June."
Last month, the Fed voted to keep the benchmark rate at 3.5-3.75%. The CME FedWatch tool shows a 97% probability that rates will remain unchanged at the next policy meeting.
