US Inflation Re-Accelerates to 3.4% in April, Complicating Fed's Rate Path

US consumer prices rose more than expected in April, with the CPI increasing 3.4% year-over-year versus the 3.1% consensus forecast — a re-acceleration that complicates the Federal Reserve's path toward interest rate cuts.

Core CPI, which excludes food and energy, came in at 3.6% year-over-year, also above estimates of 3.3%. Month-over-month, the headline index gained 0.4%, the fastest pace since January.

Shelter costs — which carry a 36% weighting in the CPI basket — rose 5.5% year-over-year, remaining the largest single contributor to above-target inflation. Energy prices reversed three months of declines, adding 0.3 percentage points to the monthly reading.

Based on my analysis of the underlying components, the re-acceleration is not yet broad-based. Supercore inflation (services excluding housing) actually softened to 4.1% from 4.4%, suggesting the stickiest part of the problem may be peaking. However, until shelter costs show a convincing deceleration — which lagged indicators suggest won't appear in the data until Q3 — the Fed has little room to cut.