America is in for yet another long spell of price pain

By Elisabeth Buchwald, CNN

(CNN) — President Donald Trump’s latest Iran war pitch to American consumers: Short-term pain will bring long-term gain. But Tuesday’s ugly consumer inflation report, Wednesday’s uglier wholesale inflation report and some worrying bond market signals all point to one thing.

The pain will not be short-lived.

Wednesday’s Producer Price Index report showed the war with Iran is raising costs for US businesses at a rate not seen in nearly four years, increasing the likelihood that companies will pass on those higher costs to consumers.

PPI, a measure of wholesale inflation, increased in April to 6% on an annual basis from 4% in March, well exceeding economists’ expectations. On a monthly basis, the index increased 1.4%, according to data released Wednesday by the Bureau of Labor Statistics. That’s twice the pace that economists expected. It’s also the second-largest monthly gain dating back to the index’s inception in 2010.

A 15.6% increase in gas prices accounted for 40% of the increase in prices businesses paid last month. That only looks to be getting worse with oil prices yet to reach their peak levels and global inventories falling at a record pace, according to a report released Wednesday by the International Energy Agency.

But the picture is still ugly for businesses even when excluding the volatile categories of food and energy. That measure, known as core PPI, rose 1% for the month, pushing the annual rate to 5.2%.

Trump has repeatedly downplayed inflation risks for Americans and the toll that higher gas prices have had on their finances.

“Our inflation is just short-term,” he told reporters Tuesday before departing Washington for his two-day trip to meet President Xi Jinping in China. “As soon as this war is over, you’re going to see inflation go down probably to one and a half percent,” he said, referring to consumer price hikes.

This week’s inflation reports show that’s not likely to happen – not anytime soon, anyway.

Even if the United States were to reach a deal with Iran today, it would still take months for shipments of oil held up by the blockade of the crucial Strait of Hormuz to reach American soil. And even then, it would likely be months – or potentially years – before Americans see gas prices return to levels before the war.

Meanwhile, the Federal Reserve’s go-to medicine to combat higher inflation, raising interest rates, isn’t an obvious choice because it risks harming the labor market, which has been on shakier ground in recent months.

What this means for consumers

Wednesday’s report does not guarantee consumers will see prices rise at the same rates that businesses are experiencing. Companies can try to pass along their higher costs, but they also have to weigh whether consumers are willing — or able — to pay more.

In the current environment, where Americans are now seeing consumer price increases outpace wage growth — largely a result of the jump in gas prices — households have less capacity to absorb additional cost pressures.

Earlier this week, the BLS reported consumer prices rose 0.6% on a monthly basis, driving the annual rate to 3.8%, the highest rate since May 2023.

At the same time, businesses also have less room to absorb elevated costs, having already shouldered much of the burden of Trump’s heftier tariffs over the past year. That means at least some of their added expenses are likely to be passed on to consumers. The question is how much.

Following Wednesday’s PPI release, economists upped their expectations for the May Consumer Price Index report, anticipating that wholesale inflation pressures will filter through more quickly to the consumer level.

“The jump in input prices portends further increases for consumer prices in May,” Nationwide senior economist Ben Ayers said in a note Wednesday. He expects CPI will go above 4% in next month’s report, which would mark the highest rate since May 2023.

Wall Street has reacted with caution to the latest batch of inflation readings, scaling back expectations of a near-term rate cut. Treasury yields initially surged Wednesday before paring gains: The 10-year Treasury yield hit 4.49%, on the cusp of the closely watched 4.5% threshold, before easing back to around 4.46%. The moves underscore concern that sticky inflation could keep the Fed on hold for longer than anticipated, even with an incoming Fed chair who is more closely aligned with Trump’s calls for aggressively lower borrowing costs.

Stocks were slightly lower: The Dow was down 196 points, or 0.4%. The S&P 500 fell 0.25%, and the Nasdaq fell 0.2%.

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CNN’s John Towfighi contributed reporting.