U.S. consumer prices jump as Iran war sends energy prices rapidly higher

People shop at a grocery store, in Schaumburg, Ill., Thursday, April 2, 2026. (AP Photo/Nam Y. Huh)

WASHINGTON — U.S. consumer prices climbed sharply again last month as the 10-week war with Iran pushed energy prices higher.

The Labor Department’s consumer price index rose 3.8 per cent from April 2025, according to data released Tuesday. On a month-to-month basis, April prices rose 0.6 per cent from March as gasoline prices rose 5.4 per cent during the month; the month-over-month gain was down from 0.9 per cent increase from February to March.

Labor Department figures showed that gasoline prices are up more than 28 per cent compared with a year ago. However, the AAA motor club listed the average regular gallon of gasoline above US$4.50 on Tuesday, about 44 per cent more than it cost last year at this time.

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Excluding volatile food and energy costs, so-called consumer core prices rose 0.4 per cent last month from March and 2.8 per cent 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 per cent from March to April as meat prices rose. Those prices had retreated slightly the month before.

“Inflation is the key drag on the U.S. economy now,” Heather Long, chief economist at Navy Federal Credit Union wrote. “There is a real financial squeeze underway. For the first time in three years, inflation is eating up all wage gains. 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 per cent from a year earlier after accounting for inflation -- the first year-over-year drop in three years.

Inflation had been dropping more or less steadily since peaking with a 9.1 per cent year-over-year spike in prices in June 2022, a surge caused by supply chain bottlenecks at the end of COVID-19 lockdowns and an energy price shock following the Russian invasion of Ukraine. But inflation remained above the Federal Reserve’s two per cent target.

Then, the United States and Israel attacked Iran on Feb. 28, and Tehran responded by shutting off access to the Gulf of Hormuz, through which a fifth of the world’s oil and liquefied natural gas passes. Energy prices rocketed in response.

The Fed, which had been expected to cut its benchmark interest rates in 2026, has turned cautious as it waits to see how long conflict lasts and whether higher energy prices spill over into other products and cause a broader inflationary outbreak.

U.S. 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; but it’s 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.

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Some 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 per month on clothing, mostly on Amazon, but not anymore.

“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."

For example, King noted that while it’s only a five minute drive to work, she makes the trip twice a day. And if she needs to do any big shopping, that’s a 40-minute drive to malls in Des Moines, Iowa.

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AP Retail Writer Anne D’Innocenzio in New York contributed to this story.

Paul Wiseman, The Associated Press