By David Enna, Tipswatch.com
The lingering war in the Mideast, and its oil-price shock, sent U.S. seasonally-adjusted inflation 0.6% higher in April and pushed the annual rate to 3.8%, its highest level since May 2023, the Bureau of Labor Statistics reported today.
Core inflation rose 0.4% for the month and 2.8% for the year — both numbers higher than expectations.
Economists expected an ugly report for April, but this was a bit uglier than forecast. Gasoline costs were a key factor, of course, rising 5.4% in the month after soaring 21.2% in March. Gas prices are now up 28.4% over the last year. The BLS said energy costs accounted for 40% of the all-items increase.
Shelter costs rose 0.6% for the month, a high number that was boosted by April survey data replacing missing data for October 2025. For October, when no data were collected, BLS set shelter inflation at 0.0%, obviously too low. This report begins to bring annual inflation back into line. Did shelter costs truly rise 0.6%? Probably not.
Also in the report:
- Food at home costs increased a disturbing 0.7% in April, after falling 0.2% in March. The annual rate is now 2.9%.
- Costs of fruits and vegetables were up 1.8% for the month and 6.1% for the year.
- Beef prices rose 2.7% for the month.
- Apparel costs rose 0.6% for the month and 4.2% for the year.
- Airline fares were up 2.8% for the month and are now up 20.7% for the year.
- Costs of new vehicles fell 0.2% for the month and are up only 0.2% for the year.
- Costs of used cars and trucks were flat for the month.
- Costs of medical care services were flat but up 3.2% for the year.
Although gasoline and shelter dominated this April report, there were many signs of inflation creeping across the economy — food, airline fares, household furnishings, apparel, etc. The result is this very scary chart:
What this means for TIPS and I Bonds
Investors in Treasury Inflation-Protected Securities and Series I Savings Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances for TIPS and set future interest rates for I Bonds. For April, the BLS set the inflation index at 333.020, an increase of 0.85% over the March number.
For TIPS. The April report means that principal balances for all TIPS will rise 0.85% in June after rising 1.05% in March. These are gaudy numbers, but will be balanced off later in the year when non-seasonally-adjusted inflation runs lower than the seasonally-adjusted version. Here are the new June Inflation Indexes for all TIPS.
For I Bonds. April is the first of a six-month string that will determine the I Bond’s new variable rate, which will be reset November 1. We can’t draw any conclusions from this one-month 0.85% increase, but I can say it is the highest April number over the last 14 years I have been tracking this data.
What this means for future interest rates
We can be certain the Federal Reserve, even under Kevin Warsh’s new leadership, will not be cutting short-term interest rates until this energy shock settles down and we can see the lasting results.
With inflation surging, should the Fed be raising interest rates? Also not likely, especially if the U.S. economy begins slowing down under the weight of energy costs. So I am thinking we are in a period of uneasy stability for short-term rates.
From today’s Bloomberg report:
Even if the current ceasefire holds and the Strait of Hormuz reopens soon, economists anticipate higher costs are likely to persist in the months ahead as oil output normalizes and shipping flows recover. …
The FOMC is likely to be concerned by renewed signs of food inflation accelerating, given the risk that higher gasoline and food prices together will further boost households’ inflation expectations.
And the Wall Street Journal:
The April report is the latest sign that the rate cuts that markets were pricing in at the start of the year are no longer a 2026 story. … Now, the policy debate within the Fed has shifted away from when to cut rates and toward when to start signaling that a rate hike is as likely as a rate cut.
It’s possible we could see inflation begin to stabilize in coming months, while remaining in a range around 4.0%. That is not the set-up for cuts in interest rates. And once again, we can see the value in investing in inflation protection.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
