The US Bureau of Labor Statistics will release April consumer price index data on Tuesday, with economists forecasting a monthly increase of 0.6% — down from March's 0.9% but still enough to push the annual rate to 3.7%, the highest since September 2023. Core CPI, which strips out food and energy, is expected to rise 0.4% month-on-month, keeping the annual core rate at 2.7%.
Oil Prices Complicate the Picture
Crude oil's sharp run-up this spring is making inflation forecasts harder to pin down. West Texas Intermediate crude surged more than 50% from late February through April as tensions between the US and Iran escalated. The market saw a brief correction in early May, but prices remain roughly 40% above where they stood before the conflict began. That energy spike is feeding into transportation and production costs across the economy, threatening to keep headline inflation elevated even as other price pressures ease.
Fed Officials Sound Warnings
Minneapolis Fed President Neel Kashkari said this week that a prolonged closure of the Strait of Hormuz — a key chokepoint for global oil shipments — could unhinge inflation expectations. St. Louis Fed President Alberto Musalem acknowledged that inflation is still running above the central bank's 2% target and that policymakers need to worry about underlying price pressures, tariffs, and oil supply shocks all at once.
Their comments reinforce a cautious tone at the Federal Reserve. Markets are currently pricing in a 73% probability that the Fed will leave its benchmark rate in the 3.5% to 3.75% range through the end of the year. There is a 20% chance of a quarter-point hike, according to futures data. A rate cut before 2026 looks unlikely.
Deutsche Bank’s Jim Reid Expects Slightly Higher Numbers
Deutsche Bank strategist Jim Reid expects April headline CPI to come in at 0.58% month-on-month, with core at 0.39%. On an annual basis, he sees headline at 3.8% and core at 2.8% — all a hair above the consensus forecasts. If Reid is right, the numbers would reinforce the narrative that inflation is proving stubbornly difficult to fully tame.
UOB Group's Alvin Liew warned that if energy prices stay elevated, the first US rate cut could be delayed into 2027. That would push any monetary easing beyond the current election cycle and into the next administration.
Currency Markets Wary
The euro has shown some bullish signs against the dollar in the near term, but the move lacks conviction. Resistance sits at 1.1800 to 1.1820. Traders are waiting to see if Tuesday's data gives the greenback a fresh boost or if the inflation overshoot is already priced in.
Tuesday's CPI release will be the key test. If the numbers match or exceed the high-end forecasts, the Fed's hawkish stance will likely harden. If they come in softer, some of the rate-hike speculation could fade — but only temporarily. The oil situation isn't going away anytime soon.
