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In April, inflation rose to 3.8%, the highest in three years, impacting American finances. Prices for essentials like groceries and electricity are increasing, prompting concerns among Federal Reserve officials about potential rate hikes instead of cuts as consumer incomes decline.
People shop at a Lidl Supermarket on 11 May 2026 in the Crown Heights neighbourhood of the Brooklyn borough in New York City.(Getty Images via AFP)A key inflation gauge accelerated in April to the highest level in three years, squeezing Americans' finances. 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, data showed.
Inflation above Fed's target
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 may be growing more entrenched. Inflation is 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 most substantial move under new Fed Chair Kevin Warsh could be a rate hike, rather than a cut.
US income fell for third month
Thursday's report showed that Americans' after-tax, inflation-adjusted incomes fell for the third straight month, while spending, adjusted for inflation, barely rose.
Americans' incomes were unchanged in April from March, 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.
Core inflation rose to 3.3%
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.
US economic growth
The US 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.
Resilient consumer spending — mostly by upper-income households — and ongoing investment in artificial intelligence infrastructure are helping propel modest growth.
Growth in consumer spending, which accounts for two-thirds of U.S. economic activity, slowed to 1.4% in the first quarter from 1.9% at the end of 2025 and was down from the 1.6% preliminary first-quarter estimate. But business investment, likely driven by spending on artificial intelligence, rose at a 7% pace.
Gas prices in the US
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.
Earlier Wednesday, Treasury Secretary Scott Bessent said higher prices would be “transitory,” reviving an ill-fated term used by former Fed Chair Jerome Powell to describe the 2021-22 inflation spike that became a forceful political tailwind for Trump in his campaign for a second presidential term.
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