Iran war pushes US inflation to 3.8% as petrol prices surge
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US consumer prices rose 3.8% in April as the Iran war drove petrol costs up 28% in a year, with real wages falling for the first time in three years, according to government data.
US consumer prices climbed sharply again last month as the 10-week Iran war pushed energy costs higher.
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The US Department of Labour's consumer price index rose 3.8% from April 2025, according to data released on Tuesday.
On a month-to-month basis, April prices rose 0.6% from March, with petrol up 5.4% during the month. The month-over-month gain was down from 0.9% increase from February to March.
Petrol prices are up more than 28% compared with a year ago, according to US government data. The AAA motor club reported the average price of a gallon of petrol was above $4.50 (€3.84) on Tuesday, about 44% higher than it was at this time last year.
Excluding volatile food and energy costs, so-called consumer core prices rose 0.4% last month from March and 2.8% from April 2025 — relatively modest readings that suggest the energy price burst has yet to spill over more broadly into other prices.
Grocery prices rose 0.7% from March to April after retreating slightly the month before, driven by higher meat costs.
"Inflation is the key drag on the US economy now," Heather Long, chief economist at Navy Federal Credit Union wrote.
"There is a real financial squeeze under way. For the first time in three years, inflation is eating up all wage gains," Long said. "This is a setback for middle-class and lower-income households, and they know it. They are having to cut back on spending and stretch every dollar."
In April, average hourly wages fell 0.3% from a year earlier after accounting for inflation — the first year-on-year drop in three years.
'Recession-level industry decline'
Inflation had been dropping more or less steadily since peaking at a 9.1% year-over-year spike in prices in June 2022, a surge driven by supply chain bottlenecks at the end of COVID-19 lockdowns and an energy price shock following Russia's full-scale invasion of Ukraine. But inflation remained above the US Federal Reserve's 2% target.
Then the US and Israel attacked Iran on 28 February, and Tehran responded by bombarding its neighbours and shutting off access to the Gulf of Hormuz, through which a fifth of the world's oil and liquefied natural gas (LNG) passes. Energy prices skyrocketed in response.
The Fed, which had been expected to cut its benchmark interest rates in 2026, has become cautious as it waits to see how long the Iran war will last and whether higher energy prices spill over into other products and trigger a broader inflationary outbreak.
US President Donald Trump has lambasted the Fed and its outgoing chair Jerome Powell for refusing to slash rates to boost the economy.
Kevin Warsh, the president's hand-picked choice to succeed Powell, is expected to be confirmed by the Senate this week.
It is unclear whether Warsh would pursue lower rates given the uncertainties arising from the war — or whether he could persuade his colleagues on the Fed's rate-setting committee to go along if he tried.
RelatedSome companies are also starting to feel the pain. For example, Whirlpool, which makes KitchenAid and Maytag appliances, reported last week that revenue dropped nearly 10% in its most recent quarter and said that the war has caused a "recession-level industry decline" that has undermined consumer confidence.
Grace King, 31 of Ames, Iowa, said that higher prices in the food aisle and at the pump are making her cut back on spending for things like clothing. The administrative assistant used to spend $200 (€170) per month on clothing, mostly on Amazon, but no longer does.
"There's pressure basically everywhere from the groceries that I buy to the gas to fill up the tank," she said. "I've severely cut back on my frill spending."
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