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A slowing labor market was the Federal Reserve’s main focus in mid- to late 2025. Attention has shifted to inflation in 2026 as energy prices spike amid the ongoing conflict in the Middle East.
Since late February, when the war between the U.S., Israel and Iran began, oil prices have spiked to their highest level in four years and gas prices have jumped above $4.50 per gallon.
“No matter how long the Iran war goes on, the economy is bound to suffer from it,” write David Payne and Matthew Housiaux of The Kiplinger Letter. “How much and how severely depends on just how long the conflict continues to crimp key energy exports.”
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And it’s already taking its toll on consumers’ purchasing power. In March, for instance, the Consumer Price Index (CPI) posted its largest monthly increase since June 2022 (+0.9%) and its biggest annual rise since May 2024 (+3.3%).
Rising energy costs were the main reason behind the hot headline number. “The index for energy rose 10.9 percent in March, led by a 21.2-percent increase in the index for gasoline which accounted for nearly three quarters of the monthly all items increase,” said the Bureau of Labor Statistics (BLS).
And Payne expects another large increase in gas prices in the April CPI, considering it measures mostly mid-month data. “That should shoot the 12-month inflation rate close to 4.0%, where it should stay until gasoline prices start falling,” he explains in the Kiplinger inflation outlook.
Higher inflation will make the Federal Reserve more hesitant to lower interest rates — especially amid signs the labor market is stabilizing. According to CME Group FedWatch, futures traders don’t expect any rate cuts at all in 2026. Earlier this year, betting odds were for at least one quarter-point cut.
What is the CPI?
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“CPI is a measure of the average price of that basket of goods and services over time,” writes Kiplinger contributor Coryanne Hicks. “The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy.”
The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.
Unsurprisingly, core CPI remained relatively tame in March, rising 0.2% month over month and 2.6% year over year — roughly in line with February’s readings.
When does the April CPI come out?
The Bureau of Labor Statistics will release the April CPI report at 8:30 am Eastern Standard Time on Tuesday, May 12.
Headline CPI is expected to be up 0.6% from March to April and 3.7% from the year prior. Core CPI is forecast to rise 0.3% month over month and 2.7% year over year.
Ahead of the April CPI report, we looked at what economists, strategists and other experts on Wall Street expect the data to show. You’ll find these outlooks, edited at times for brevity, below.
What to expect from the April CPI report
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“April’s CPI report will be more interesting than usual. The ongoing conflict in the Middle East has kept energy prices elevated, which will start to generate more obvious spillovers into other areas of inflation. We estimate headline CPI to rise 0.63% over the month, lifting the year-over-year pace to 3.8%. Excluding food and energy, we look for core CPI to increase 0.50% in April and 2.9% on a year-ago basis.” – Wells Fargo economists
“The April CPI report likely will show little to no daylight between wage inflation and consumer-price inflation, setting the stage for a loss of momentum in consumer spending (especially discretionary outlays) in the coming months.” – Jennifer Timmerman, Senior Investment Strategy Analyst at Wells Fargo Investment Institute (WFII)
“April CPI should continue to show the effects of the Iran war. Core CPI, meanwhile, will likely reflect the payback in rents from the shutdown and sticky non-housing services inflation. We think the risks to our forecast are to the upside for both headline and core inflation. For headline, we see upside risks from food inflation. The reversion from last month may be more material than what we penciled in and pressures on food prices remain. Additionally, we think risks for our core goods forecast are for a firmer print as we may not get the decline in apparel that we are projecting.” – BofA Securities economists
“The April CPI report, due next Tuesday (May 12), will include one-off adjustments to rent and OER CPI indices, to make up for the shortfall from the government shutdown last fall. In addition, with oil and gasoline prices having remained elevated, we expect another boost from energy prices. Overall, we forecast headline inflation at 0.55% m/m (3.7% y/y) and core inflation at 0.34% m/m (2.7% y/y).” – Pooja Sriram, U.S. economist at Barclays
