US inflation surged to its highest level in three years, a consequence of the Iran-Iran conflict, dashing hopes of a Federal Reserve interest rate cut. Meanwhile, real household income continued to decline and savings hit their lowest level in four years.
May 29, 2569 at 04.22:XNUMX a.m., Reuters reported that U.S. inflation accelerated to its highest level in nearly three years in April, amid the impact of the Iran war which has driven energy prices higher. As a result, most economists believe that the Federal Reserve (Fed) is likely to keep interest rates at high levels at least until next year.
Data from the U.S. Department of Commerce shows that the Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation for the Federal Reserve, rose 3.8% in April compared to a year earlier. This is the largest increase since May 2566 and higher than the 3.5% level in March.
On a monthly basis, the PCE index rose 0.4% after surging 0.7% the previous month, while core PCE, which excludes food and energy, increased 3.3% year-on-year, the highest since November 2566.
Analysts say the war in the Middle East has impacted transportation through the Strait of Hormuz, causing energy prices to rise significantly. It has also put pressure on global supply chains, leading to higher prices for various commodities and raw materials such as fertilizers, aluminum, and consumer goods.
The U.S. Energy Information Administration (EIA) revealed that the average retail price of gasoline nationwide increased by 12.3% in April, and since the price war began in late February, gasoline prices have risen by more than 50%.
Besides energy, prices of goods and services in many categories continued to rise. Overall commodity prices increased by 0.7% in April, while food prices rebounded by 0.5% after a period of slowdown. Energy costs, however, increased by as much as 5.5%.
Inflationary pressures arose at a time when the U.S. economy was feeling the impact of President Donald Trump's import tariffs, which continued to be passed on to consumers.
This situation is eroding the purchasing power of American households, with real disposable income (after adjusting for inflation) falling for the third consecutive month and declining by 1.1% year-on-year, the sharpest decline since November 2565.
Meanwhile, household savings rates fell to just 2.6% in April, the lowest level in almost four years, down from 3.2% in March, reflecting that many consumers are beginning to withdraw their savings to cope with rising living costs.
Although consumer spending, which accounts for more than two-thirds of U.S. economic activity, still increased by 0.5% in April, this was largely driven by higher energy spending rather than strong consumption.
Overall personal income remained virtually unchanged in April, while wages increased by only 0.2%, resulting in continued weakness in real purchasing power.
A recent Reuters/Ipsos poll also reflects growing dissatisfaction among Americans with President Trump's economic management, with his approval ratings near their lowest level since returning to the White House in early 2568, despite winning the election on inflation reduction as one of his key policies.
Analysts warn that rising oil prices and the cost of living could impact Republicans' chances of securing a majority in Congress in the November midterm elections. However, Trump said on Wednesday that he was not concerned about the political repercussions of a potentially prolonged war with Iran.
The Federal Reserve continues to face difficulties in implementing monetary policy because, while the central bank cannot directly address supply-side shocks, it cannot ignore the inflation that is embedding itself in the economy.
Financial markets therefore anticipate that the Fed will maintain its policy interest rate within the 3.50%-3.75% range until 2570. Meanwhile, the latest Fed meeting minutes reflect that some committee members are becoming open to the possibility of further interest rate hikes if inflationary pressures remain more severe than expected.
Meanwhile, the U.S. Department of Commerce lowered its forecast for first-quarter consumer spending growth from 1.6% to 1.4% and its GDP growth forecast from 2.0% to 1.6%.
Economists believe that the U.S. economy is currently being primarily driven by investment in artificial intelligence (AI), rising asset prices, and spending by high-income households that benefit from a rising stock market.
“Current economic expansion is still heavily reliant on affluent consumers, AI-related investment, and rising asset values, which is masking the growing vulnerability of the overall economy,” said Gregory Dago, chief economist at EY-Parthenon.
refer : reuters.com
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