US faces rising costs with Iran war driving energy prices, inflation higher
United States consumer prices have risen for the second consecutive month, marking the biggest annual increase in almost three years, as energy prices surged on the back of the US-Israel war on Iran.
US consumer prices rose by 0.6 percent in April after a 0.9 percent increase in March, according to the Bureau of Labor Statistics consumer price index (CPI) report published on Tuesday.
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Prices ticked up by 3.8 percent on an annual basis, which is the largest jump since May 2023. Prices rose by 3.3 percent in March.
The increase was driven by a surge in energy prices, including prices for petrol or gasoline, which rose by 5.4 percent.
On an annual basis, the increase is stark. Energy prices surged by 17.9 percent over the last 12 months, with petrol prices up 28.4 percent compared to this time last year.
The average price for a gallon (3.78 litres) of petrol is $4.50, according to the American Automobile Association (AAA), which tracks daily petrol prices. The average price was $2.98 when the US and Israel first struck Iran on February 28.
“The passthrough of higher energy costs to non-energy prices was most apparent in airfares, which airlines have had to raise to cover rising jet fuel prices,” Bernard Yaros, lead US economist for Oxford Economics, said in a report provided to Al Jazeera.
Airfares rose by 2.8 percent compared to the month prior, driven by heightened jet fuel costs that have put strains on air carriers, including Spirit Airlines, which ceased operations earlier this month after 34 years in business. The airline attributed heightened fuel costs to “recent geopolitical events” in court documents.
‘I don’t think about Americans’ financial situation’
On Tuesday, US President Donald Trump was asked if the financial situation Americans are facing was a motivating factor for making a deal with Iran. The president responded: “Not even a little bit”
Advertisement“The only thing that matters when I’m talking about Iran: They can’t have a nuclear weapon. I don’t think about Americans’s financial situation. I don’t think about anybody. I think about one thing: We cannot let Iran have a nuclear weapon,” Trump told reporters.
In a statement to Al Jazeera, the White House said the price bump will likely be temporary.
“President Trump has always been clear about temporary disruptions as a result of Operation Epic Fury,” White House spokesperson Kush Desai told Al Jazeera.
Economists say that conflict with Iran will keep prices high.
“We still look for CPI inflation to peak this quarter at a pace well below its pandemic-era heights. While the core CPI will remain elevated this year, it’s unlikely to move significantly higher from here,” Yaros said.
Grocery prices jump
Grocery prices are also on the rise, up by 0.7 percent. Prices for meat, poultry, fish and eggs rose by 2.7 percent compared to the previous month. The price of beef specifically jumped 2.7 percent.
Fruit and vegetable costs surged 1.8 percent. Compared to this time last year, goods including tomatoes jumped by almost 40 percent, and more than 15 percent from this time last month alone.
Coffee prices rose by 18.5 percent compared to this time last year, while jumping 2 percent compared to last month.
“Every day the war continues, prices climb higher and will stay there for months after it ends,” Alex Jacquez, a former member of the White House National Economic Council under former US President Joe Biden, said in a statement provided to Al Jazeera.
However, there was a 39 percent decrease in the price of eggs compared to this time last year, a number the White House touted in a post on social media platform X. The price, however, has ticked up on a month-by-month basis by 1.5 percent.
The White House also pointed to a decrease in smartphone prices of 12 percent since this time last year, although prices have increased by one percent from this time last month.
Smartphones were exempt from the tariffs that US President Donald Trump imposed last year.
Other tariff-exposed sectors saw price increases, with the price of clothing jumping by 0.6 percent, as did the cost of electronics overall. Both bedroom furniture and toys jumped 0.8 percent.
Healthcare costs, on the other hand, saw a decrease. Overall, drug prices fell by 0.4 percent from this time last month and were down 0.5 percent from this time last year. Prescription drug prices remained flat on a month-over-month basis and have tumbled by 0.9 percent.
Advertisement“The April CPI report reinforces, however, that President Trump’s long-term economic agenda continues to deliver despite these disruptions: drug and hospital services prices are declining thanks to the president’s Most-Favored-Nation and price transparency initiatives,” Desai said.
On Wall Street, US markets tumbled on the heels of the report. The tech-heavy Nasdaq is down 1.4 percent, the Dow Jones Industrial Average is down by 0.6 percent, and the S&P 500 is 0.8 percent lower in midday trading.
The consumer price index report comes as Chairman Jerome Powell’s term leading the US Federal Reserve central bank ends this week. Powell is to be replaced by Kevin Warsh, who is expected to be confirmed by the Senate.
With inflation ticking higher and the job market stable, the Fed is expected to keep rates unchanged through the remainder of the year even though Trump has been demanding rate cuts ever since he took office in his second term.
“A firmer economy and stickier inflation will keep the Federal Reserve on a prolonged hold – we now expect the next rate cut in December, rather than June,” Michael Pearce, chief US economist at Oxford Economics, said in a note on Tuesday.
Last month, the central bank voted to maintain its benchmark interest rate at 3.5 – 3.75 percent. CME FedWatch, which tracks the likelihood of monetary policy decisions, says there is a 97 percent chance that rates will remain unchanged at the next policy meeting for the central bank.