April Inflation Hits Highest Level in Nearly Three Years

Consumer prices in April reached their highest level in nearly three years under new Federal Reserve chief Kevin Warsh, according to the first inflation report of his tenure. The personal consumption expenditures (PCE) price index rose at an annual rate of 3.8%, reported by the Commerce Department on Thursday.

The increase was slightly below economists' expectations of a 3.9% rise, as polled by FactSet and Reuters. Core prices, excluding food and energy, increased by 0.2% for the month and 3.3% annually, according to CNBC. The Federal Reserve uses PCE measures as its primary forecasting tool.

Rising energy prices played a significant role in this inflation surge, driven by escalating tensions between the U.S. and Iran. Oil prices jumped over 2% following recent strikes between the two nations, with Brent crude prices up over 1%. The national average retail gasoline price shot up 12.3% in April, according to data from the U.S. Energy Information Administration.

The ongoing conflict has split global markets into clear winners and losers. Oil prices have increased approximately 40% since the war began three months ago, with crude oil prices currently above $100 per barrel. A record 400 million barrels of oil were released from strategic reserves to cushion supply loss.

U.S. stocks and South Korea's Kospi have reached record highs, while European shares are nearing all-time highs. SK Hynix topped $1 trillion in market value for the first time on May 27, joining Samsung Electronics and Micron Technology due to an AI-driven rally. Conversely, the S&P 500 passenger airlines index has dropped more than 6% since the conflict began due to global flight disruptions.

Treasury yields were little changed Thursday after a report that U.S. and Iranian negotiators have agreed to extend the ceasefire sent oil prices lower, even as new U.S. data reflected persistent inflation. The yield on the 10-year U.S. Treasury note dipped slightly to 4.467%. The 2-year Treasury note yield, which is more sensitive to short-term Federal Reserve interest rate decisions, was little changed at 4.025%. The longer-dated 30-year Treasury bond yield, which typically reacts to political risks, fell 1 basis point lower at 4.997%. One basis point is equal to 0.01%, and yields and prices move in opposite directions.

Oil pulled back from their highs of the day after Axios reported that the U.S. and Iranian negotiators agreed to extend the ceasefire by 60 days, and start negotiations on Iran's nuclear program. President Donald Trump has yet to give the agreement his final approval, the report said.

The West Texas Intermediate crude oil futures was last up 0.7% Thursday, above $89 a barrel, while Brent futures traded below $95 a barrel. They were higher earlier in the day, following Iranian strikes on a U.S. military base.