Inflation erases wage gains for first time in 3 years

The cost of everything feels too damn high, and now you have the numbers to prove it: Surging energy prices drove inflation to a three-year high in April, the Bureau of Labor Statistics reported yesterday, marking the first time since 2023 that the cost of living has outpaced average paycheck growth in the US.

Top line: Annual wage growth slowed to 3.6% last month, while year-over-year inflation hit 3.8%—up from 3.3% in March and 2.4% in February (before the US and Israel struck Iran). In April:

• More than 40% of inflation’s month-to-month increase came from energy prices, which were up ~18% from the same time last year. Prices at the pump continued to rise, but at a slower rate than in March.
• Food inflation also contributed, with the price of fresh produce—often transported via diesel trucks—hitting its highest monthly increase since 2010. Tomato prices alone surged 15% for the second month in a row, in part because of tariffs on Mexico.

Even without those volatile categories, core CPI still hit 2.8% last month, well above the Fed’s 2% goal. This was buoyed by higher airfares, streaming services like Netflix raising prices, and a one-time adjustment in rental costs stemming from the data blackout of last year’s government shutdown.

“Inflation is eating up all wage gains,” a chief economist at Navy Federal Credit Union told CNBC. “This is a setback for middle-class and lower-income households and they know it.” In a recent CNN poll:

• Nearly three-quarters of respondents said economic conditions are poor right now.
• “Uncertainty” and “stress” were the most common words Americans used to describe their financial futures.

Looking ahead…though incoming Fed chair Kevin Warsh has generally called for lower interest rates, the latest inflation data made traders more bullish on a rate hike by the end of the year.—ML