Consumer prices rose 3.8% annually in April, the highest since May 2023

Prices that consumers pay for a wide range of goods and services increased at a faster-than-expected pace in April, raising further concerns about the inflationary impact on the U.S. economy.

The consumer price index rose at a seasonally adjusted 0.6% for the month, putting the one-year pace at 3.8%, the Bureau of Labor Statistics reported Tuesday. The monthly rate was as forecast, but the annual rate was 0.1 percentage point above the Dow Jones consensus.

Excluding food and energy, core CPI increased 0.4% and 2.8% respectively, keeping inflation well above the Federal Reserve's 2% goal. Fed officials consider core as a better indicator of longer-term inflation trends.

The annual headline inflation rate was the highest since May 2023 and was up half a percentage point from March. Core inflation rose 0.2 percentage point annually.

Energy prices, which jumped 3.8%, again was a major contributor to the inflation surge, though food prices also climbed 0.5%. For energy, that put the 12-month gain at 17.9%, while food was up 3.2%. The gasoline index increased 28.4% annually.

Though energy and in particular gasoline has been much of the headline story, inflation pressures also came from a variety of other areas.

Shelter costs rose 0.6% after easing in prior months, indicating that inflation is a problem beyond the Iran war impacts. The tariff-sensitive apparel category increased 0.6% and airline fares accelerated 2.8%, putting the 12-month gain at 20.7%. Tariffs also seemed to hit other areas, with household furnishings and operations up 0.7%.

The report also contained bad news for workers, as real average hourly wages slipped 0.5% for the month and fell 0.3% annually.

Stock market futures were negative following the report while Treasury yields were higher. Traders also raised the odds for a Fed rate hike by the end of the year to about 30%, according to CME Group data.

"Inflation is the key drag on the U.S. economy now," said Heather Long, chief economist at Navy Federal Credit Union. "This is hurting Americans. There is a real financial squeeze underway. For the first time in three years, inflation is eating up all wage gains. This is a setback for middle-class and lower-income households and they know it."

The latest inflation news comes at a crossroads for the Fed, which has kept its benchmark interest rate steady all year amid misgivings among policymakers both on where the central bank should be heading and how it should communicate its intentions.

In late April, the Fed voted again to hold but saw four dissents, the highest since 1992. Fed Governor Stephen Miran again voted no in favor of a quarter percentage point cut, while three regional presidents objected to language that markets read as an indicator that the next move will be a cut.

At the same time, incoming Chair Kevin Warsh has advocated for lower rates, a position that will be difficult to square with the burst of inflation since the fighting in Iran began. Energy prices have surged, with oil running above $100 a barrel and gasoline averaging $4.50 a gallon nationally, according to AAA.

"Given that inflation is heading in the wrong direction and the labor market is holding up, it's very unlikely that the Fed will be able to lower interest rates any time soon and it's possible that we may start pricing in rate hikes for next year," said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Amid the higher rates, consumer sentiment has hit all-time lows though the stock market has been resilient. Major averages are just off their all-time highs as corporate America is nearing the end of a strong earnings season.

Consumer spending also has held up, though it's largely been pushed by higher-income earners and the general trend higher in prices.

Correction: The Federal Reserve voted to stay on hold in April. An earlier version misstated the month.