US inflation is back in the market spotlight
The April CPI in the U.S. was one of the most important macroeconomic releases in recent months. After a period of relative optimism, markets were once again reminded that inflation remains much more persistent than the Fed or investors had expected. The overall CPI accelerated to 3.8% y/y against an expected 3.7%, while core CPI also came in higher than forecast. Particularly important was the monthly increase of core CPI by 0.4%, which exceeded expectations and showed that underlying price pressures in the economy are not disappearing.
The main driver of the new inflation spiral was energy. Prices for gasoline, diesel, and the energy sector as a whole rose sharply amid escalating tensions around Iran and risks to oil supplies through the Strait of Hormuz. WTI oil rose above $100, and Brent approached $108, instantly bringing back fears of a new energy shock to the market. This is precisely what is currently creating the biggest problem for the Fed: even if core inflation gradually slows down, expensive energy can reignite the overall inflationary cycle through transport, logistics, food, and production costs.
Recent data also clearly show how much the structure of American consumers' expenditures has changed in recent years. Since 2020, accumulated inflation in the U.S. has already exceeded 29%. Gasoline prices have risen by more than 28%, energy commodities by almost 30%, and airline tickets by over 20%. Even basic categories such as vegetables, fruits, medical services, or car repairs continue to steadily increase in price. For the population, this means a constant decline in real purchasing power, even despite a strong labor market and rising wages.
Markets reacted quite quickly. U.S. indices opened lower, and the yield on 10-year US Treasuries again started moving towards 4.45%. For stocks, this creates several problems at once. First, high rates continue to pressure the valuations of growth companies and the technology sector. Second, credit becomes more expensive for businesses and consumers. Third, the market is beginning to revise expectations for Fed policy. If just a few months ago the main topic was future rate cuts, now the market is even considering the scenario of a new rate hike by the end of 2026.
However, it is interesting that even against a backdrop of tighter inflation, certain market segments remain exceptionally strong. This is primarily the AI sector. Nvidia continues to set new highs, JPMorgan talks about the beginning of a full-fledged AI supercycle, and large institutional investors are increasingly investing in chip manufacturers, network infrastructure, data centers, and power generation. This creates a very unusual market environment where general risk-off coexists with local euphoria around AI technologies.
Against this background, geopolitics is beginning to play an increasingly important role. Negotiations between the U.S. and Iran have effectively reached an impasse, and Donald Trump is already stating the complete unacceptability of Tehran's position. The market is not yet pricing in a full-blown scenario of major escalation, but this is where the main risk for the global economy currently lies. If the situation around the Strait of Hormuz deteriorates and oil settles significantly above $100, it could quickly return the world to conditions of a new inflationary shock.
That is why the current CPI is not just another macroeconomic report. It became a signal that the fight against inflation is not yet over, and markets may have started believing in a quick return to loose monetary policy too soon. For the dollar, this remains a positive factor, especially if risks to global growth continue to increase. For stocks, the situation is much more complicated: the market simultaneously faces high rates, more expensive energy, and increasing geopolitical uncertainty.