If you are a snow bird, a cross-border shopper, planning to visit the U.S., an importer, or curious about inflation and its economic implications, today’s Twenty-Four is for you.

Numbers released this morning by the U.S. Bureau of Labor Statistics show that the year-over-year inflation rate hit 3.8% in April—the highest reading in the U.S. since May 2023. The inflation rate also increased in March when it climbed to 3.3% from 2.4% in February as the impact of the Iran war on prices started to be felt.

Higher energy prices (particularly for gasoline and fuel oil) were the main culprit behind the rise, up 17.9% from a year earlier. Gasoline alone was 28.4% higher than the previous April.

Many other categories also saw year-over-year (y/y) price growth well above the overall 2% target, including food (3.2%), apparel (4.2%), shelter (3.3%), medical care services (3.2%), motor vehicle maintenance and repair (5.1%) and airline fares (20.7%).

Core inflation, which excludes food and energy, was running at 2.8% y/y, up from 2.6% in March.  

With the Iran war still ongoing, the elevated cost of oil and other key inputs like fertilizer will continue to flow through to other goods and services and keep upward pressure on the inflation rate.

Even if the Trump administration pauses the federal tax of 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel, the impact on overall inflation will be modest. An end to the war, time to address the damage it has caused to economic infrastructure, and lower oil prices, will all be needed for inflation to come back under control.

Unfortunately, a similar story of higher prices due to the Iran war will be evident when we get the Canadian inflation numbers next week.

In addition to the obvious impact on the cost of living, the higher level of inflation could, if sustained, lead to a major shift in spending in which consumers focus on essentials while also eroding their confidence, hurting retailers in other areas.

Overheated inflation is also a major issue for central bankers, including the U.S. Federal Reserve. While it’s still possible the war and its impact on prices will end soon, the chances that central banks will view the price spike as temporary are fading.

In terms of what the U.S. Fed will do in the face of elevated inflation, a lot will depend on the tone set by incoming Chair Kevin Warsh. Warsh takes the reins on May 15 and was purportedly nominated by President Trump because he would be more likely to cut interest rates, but the rise in inflation complicates this, as it points to keeping rates as is or even raising them rather than cuts.

As of today, 97.6% of interest rate traders are expecting a hold at the June 17 meeting of the U.S. Fed with a majority expecting no cuts this year.

Answer to the previous trivia question: Which province has the highest percentage of residents living in low-income households?

Today’s trivia question: When was the last interest rate cut by the U.S. Federal Reserve?