A key inflation gauge accelerated in April to the highest level in three years, squeezing Americans' finances and creating political challenges for President Trump and congressional Republicans with midterm elections just five months away.
Inflation jumped to 3.8% in April compared with a year ago, the Commerce Department said Thursday, up from 3.5% in March and the highest since May 2023. On a monthly basis, prices rose 0.4%, down from the 0.7% jump in March but still higher than the inflation-fighters at the Federal Reserve would prefer.
Thursday’s inflation report also showed that in addition to gasoline, prices for groceries, clothing and electricity are also on the rise, indicating that inflation could persist. Inflation is also notably above the Federal Reserve's target of 2%, which means Fed policymakers may decide to forego any cuts to their key short-term interest rate this year. Some officials have signaled that the central bank's next move could be a hike rather than a cut.
Excluding the volatile food and energy categories, core inflation rose to 3.3% in April from 3.2% the previous month. It is the highest core figure since October 2023. One positive sign in the report: Core prices rose just 0.2% in April from March, down from 0.3% the previous month.
RELATED STORY | Consumer confidence dented with high gas prices and inflation still elevated
Higher prices are also cutting into the incomes of Americans, which were unchanged in April from March. Incomes were weak in part because farm incomes fell after a large government aid package ended last month. Adjusted for inflation, personal income actually slipped 0.1% last month.
Spending rose 0.5% in April from March, though most of that reflected price increases. Adjusted for inflation, spending rose just 0.1% in April, down from 0.3% the previous month.
“Signs of stress are building inside the American household across the economy,” Joe Brusuelas, chief economist at RSM, a tax advisory firm, said. “Inflation-adjusted spending, disposable income ... point to a slowing in May spending as inflation approaches a peak on the back of a historic supply shock."
The U.S. economy grew at a modest 1.6% annual pace from January through March, according to a separate report from the Commerce Department Thursday. The country’s gross domestic product — the nation’s output of goods and services — rebounded from a lackluster 0.5% expansion the last quarter of 2025 when growth was hobbled by the 43-day federal government shutdown.
The first-quarter growth, which covered the first month of the Iran war, was a downgrade from the 2% expansion Commerce initially reported.
RELATED STORY | Walmart to use tariff refunds to ease inflation’s strain on shoppers
Gas prices averaged of about $4.50 a gallon nationwide for three weeks this month before slipping to $4.43 on Thursday, according to the AAA motor club. Gas averaged $2.98 a gallon the day before the Iran war began.
Yet the cost of many other goods and services have picked up in recent months, raising concerns among many Fed officials that inflation is being pushed higher by tariffs and other factors in addition to the war. The cost of services such as dental visits, car repairs and veterinarian visits have been rising sharply, and clothes, toys, and groceries are also seeing outsize price gains.
Rapid investment in artificial intelligence centers also appears to be driving up the cost of computer equipment and software, adding to inflationary pressures. Electricity prices have also spiked from a year ago.
