War Drives Inflation Higher Again... Prices Outpace Wage Growth for First Time in Three Years

US April CPI Hits 3.8%, Highest in Three Years

Core CPI Exceeds Expectations

Real Wages Turn Negative at -0.3%

In April, the Consumer Price Index (CPI) growth rate outpaced the average hourly wage increase for Americans for the first time in three years since April 2023. The surge in gasoline prices, triggered by the ongoing war in Iran, has offset wage gains. As the financial burden on U.S. households rises, expectations are growing that the Federal Reserve’s plans to cut interest rates may be delayed.

On May 12 (local time), the U.S. Department of Labor announced that the April CPI rose by 3.8% year-on-year. Compared to the previous month, it increased by 0.6%. These figures are in line with expert forecasts compiled by Dow Jones.

A supermarket located in Manhattan, New York. New York (USA) - Special Correspondent Yoonju Hwang

However, the core CPI, which excludes the volatile food and energy sectors, increased by 2.8% year-on-year and 0.4% month-on-month, surpassing market expectations of 2.7% and 0.3%, respectively. This suggests that underlying inflationary pressures are more persistent than anticipated.

Energy prices were the main driver of the April CPI. The energy index rose by 3.8% month-on-month, accounting for over 40% of the total increase in CPI. In particular, gasoline prices jumped by 5.4% from the previous month, and by 11.1% before seasonal adjustment. The year-on-year increase reached 28.4%. The prolonged war in Iran has led to higher international oil prices, which are now reflected in consumer prices.

Housing and food prices also remained high. The shelter index rose by 0.6% month-on-month. Both rent and owners’ equivalent rent increased by 0.5% each. Food prices increased by 0.5% compared to the previous month, beef prices rose by 2.7%, and prices for fruits and vegetables climbed by 1.8%.

Surging Gasoline Prices Erase Wage Gains

Of particular note is the weakening real purchasing power of American households. According to the Department of Labor, the average hourly wage increase in April was 3.6% year-on-year, which fell short of the 3.8% rise in CPI. This marks the first time since April 2023 that inflation has outpaced wage growth.

As a result, real hourly earnings, which reflect price changes, fell by 0.3%. This indicates that the wage increases observed since the COVID-19 pandemic are now being partially offset by inflation stemming from the Iran war. The Wall Street Journal (WSJ) pointed out that the growing cost-of-living burden, due to eroded wage gains, is a key factor behind the recent drop in U.S. consumer sentiment to historic lows.

Thomas Martin, Chief Portfolio Manager at Globalt Investments, stated in an interview with CNBC, “The longer the conflict in the Middle East persists, the more inflation will continue to intensify. As gasoline and other prices rise, more and more people will be affected, and ultimately, consumers will continue to face difficult times.”

On a weekly basis, the decline was somewhat limited. As working hours in April rose slightly, weekly real earnings for private sector workers decreased by only 0.2% year-on-year, while production and nonsupervisory employees saw a 0.1% increase.

Market participants believe that the future trajectory of international oil prices will be a key variable for the Federal Reserve’s policy decisions. While headline CPI provided some relief by meeting expectations, the core CPI exceeded forecasts and real wages have turned negative.

Brett Kenwell of eToro commented, “While the labor market and the overall economy remain stable, the situation is becoming more complex as the Fed’s policy direction diverges and inflation rises.”

Skyler Wynant of Reagan Capital stated, “Inflation is surging again, mainly because of high oil prices, and as the Middle East conflict continues, this will remain the primary factor influencing inflation for the remainder of the year.”

This content was produced with the assistance of AI translation services.