US inflation rose to 3.8% in April, eroding Americans’ paychecks

By Alicia Wallace, CNN

(CNN) — For the first time in three years, Americans’ wages are no longer outpacing inflation.

Prices rose 0.6% on a monthly basis, driving the annual rate to 3.8%, the highest since May 2023, according to the latest Consumer Price Index data released Tuesday by the Bureau of Labor Statistics.

Economists had expected prices to rise 0.6% from March and for the annual rate to climb to 3.7%.

Prior to the late-February US-Israeli strikes on Iran, inflation had eased to 2.4%. It leaped higher in March, and now, the energy price shock from the Iran war is further compounding longstanding affordability concerns for Americans weighed down by years of fast-rising prices.

“For consumers, that means the cost of living remains uncomfortable,” economist Sung Won Sohn, a finance and economics professor at Loyola Marymount University, wrote in a note Tuesday. “For the Federal Reserve, it means rate cuts are likely to be pushed in the future.”

Pricier produce, fuel and electricity

The post-pandemic inflationary burst, when the annual pace of price hikes hit a four-decade high of 9.1% in the summer of 2022, drastically lifted all manner of prices. However, in recent years as inflation slowed, at least some Americans were able to get a leg up as their pay was rising faster than inflation.

That changed last month: Annual inflation-adjusted average hourly wage growth went negative for the first time since April 2023.

Paychecks grew 3.6% from April of last year, on average; prices rose 3.8%.

“Consumers were already under pressure; we’ve seen a softening in the labor market,” Augustine Faucher, senior vice president and chief economist at the PNC Financial Services Group, told CNN.

This unwelcome milestone arrives as Americans are contending with an energy price shock that’s rippling through the economy, making commonly purchased items even more expensive.

Plus, it’s not just oil: A choked-off Strait of Hormuz has interrupted a flow of other critical materials, including fertilizers, aluminum and helium.

As it stands now, the higher prices are hitting consumers in some of the most visible of places: the gas station, the grocery store and their electric bills.

Gas prices didn’t rise as fast as they did in March (when they shot up by a record 21.2%); however, the 5.6% increase in April was the second-fastest seen since the latter part of 2023.

Electricity prices – moved higher last year because of factors such as demand for data centers, weather and infrastructure costs – now face additional pressures from the global oil and gas shock. In April, prices for electricity rose 2.1%, the fastest monthly increase in more than four years.

Overall food prices rose 0.5% (grocery items were up 0.7%) last month and are up a respective 3.2% and 3.6% from the year before.

Meat prices, particularly beef, continued to climb, but so did produce.

Prices of fresh fruits and vegetables, which are often transported by refrigerated diesel trucks, rose by 2.3%, the highest monthly increase for that category since 2010, BLS data shows.

Tomato prices soared by more than 15% for the second month in a row.

“The war has come home, and Americans can feel it and see it in their grocery basket,” Joe Brusuelas, RSM US chief economist, told CNN.

An uncomfortable place for households — and the Fed

While rising energy prices accounted for 40% of April’s monthly inflation gain, another contributing factor were higher housing-related price hikes (categorized by the BLS as “shelter”), which were boosted by a one-time adjustment related to last year’s historic government shutdown.

Shelter inflation, which is one of the heaviest weighted categories in CPI, jumped 0.6% for the month (double the pace notched in March).

In October, the BLS was unable to fully collect CPI data, resulting in an assuming that rental inflation was 0 for that month. As such, inflation at the end of last year was deceptively slower than it should have been.

The BLS uses a rotating panel for its rent surveys, and the next collection point for that October reading was six months later. So, it was expected that April 2026 would include a sharper-than-typical acceleration in the weighty shelter category.

The “statistical artifact” from the October shutdown helped to boost a closely watched category of underlying inflation, said Oliver Allen, senior US economist at Pantheon Macroeconomics.

Core CPI, which excludes the volatile categories of food and energy, rose by a stronger-than-expected 0.4% last month and 2.8% annually.

In addition to the shelter-related increases, the core measure of inflation also was lifted by other potential “one-time” factors such as higher airfares as well as video and audio services (Netflix price increase), Allen said.

Although inflation is looking like it’s running pretty hot right now, there are some good reasons to believe that it’s not spiraling out of control, he said. In addition to those noted temporary increases, the tariff-related inflation appears to have mostly run its course, he added.

“I think it’s going to be uncomfortable for households and other people who are feeling squeezed over the next few months,” Allen said in an interview. “But it’s not going to be a repeat of what we saw in 2021 and 2022, when inflation numbers kept on climbing every month and there was no end in sight.”

Still, he said, it puts the Fed in a difficult position.

“Even if they want to support the labor market and support growth, it’s hard to justify (a rate cut) when core inflation is pushing up on 3% and threatening to climb above it,” Allen said.

Even so, prices are rising much more quickly than normal at a time when economic unhappiness has become a fixture of the political landscape. A new CNN poll conducted by SSRS found that 77% – including a majority of Republicans – say that President Donald Trump’s policies have increased the cost of living in their own community.

Wealth inequality has widened in recent years. Lower- and middle-income households are experiencing increased strain and having a harder time keeping up and managing debt.

Separate data released Tuesday by the Federal Reserve Bank of New York showed increased rates of consumers becoming seriously delinquent on their loans, particularly their student loans.

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CNN’s Matt Egan contributed reporting.