The Line: Consumer Prices Up 3.8% from a Year Ago

This week, The Line looks at prices and spending, which go together like milk and cookies.

Consumer Prices Up 3.8% from a Year Ago

The consumer price index rose 0.6% in April and was 3.8% higher than a year ago. The 3.8% annual increase in headline CPI was the largest in almost three years. The biggest inflation driver remained energy prices, which were up 3.8% last month and accounted for over 40% of the total increase in CPI. Core CPI, which excludes food and energy prices, rose 0.4% in April and was 2.8% higher than April 2025.

This data, along with the much higher than expected increase in the producer price index, will keep any Fed rate cuts from happening this year. In fact, markets are betting their next move will be a rate hike sometime in 2027, as job growth has been strong for the past two months while inflation remains well above their 2% target.

Retail Sales Rose 0.5% in April

Consumer spending increased by 0.5% last month and was 4.9% above last year’s level. Remember that this data is not adjusted for inflation, so much of these increases can be attributed to higher prices. If we do adjust for inflation, retail sales were down 0.1% from March, and up just 1.1% from a year ago.

Just like CPI, April’s retail sales report was all about energy prices. Sales at gasoline stations were up 2.8% just last month and 20.9% higher than April 2025.

Despite the recent surge in energy prices, consumers are still spending at a decent rate. In fact, the Atlanta Fed’s GDPNow forecast for 2^nd quarter economic growth is sitting at 4.0%. We’re only halfway through 2Q26, so that number could change dramatically, but remember that the US added 300,000 jobs in the past two months, which should help economic growth in the coming months.

To sum up:

1. The war in Iran continues to push inflation higher.
2. Consumers have been able to keep spending, even with higher prices and lower wage increases.
3. I don’t expect the Fed to touch short-term interest rates until the second half of 2027, and the next move will be a hike.