US Inflation Hits 3.8% Amid Iran War and Energy Shocks
US inflation surged to a three-year high of 3.8% in April, driven by energy price spikes from the war with Iran and the closure of the Strait of Hormuz.
U.S. annual inflation accelerated to 3.8% in April 2026, the highest level since May 2023, according to the Bureau of Labor Statistics. The surge was primarily driven by an energy price shock following military strikes by the U.S. and Israel against Iran on February 28. In retaliation, Iran blocked the Strait of Hormuz, choking off approximately 20% of global oil and LNG supplies and pushing national gasoline averages above $4.50 per gallon.
Donald Trump dismissed the financial strain on citizens, stating he does not think about Americans' financial situations and is motivated solely by preventing Iran from obtaining a nuclear weapon. To mitigate costs, he proposed suspending the federal gas tax, though he rejected bailouts for airlines. Meanwhile, the inflation spike caused real average hourly wages to turn negative for the first time in three years, as price increases outpaced a 3.6% wage growth rate.
The Federal Reserve, transitioning leadership from Jerome Powell to Kevin Warsh, maintained benchmark interest rates between 3.5% and 3.75%. While Trump pressured the central bank to slash rates, officials remained cautious, with some considering rate hikes to combat persistent pressures. Beyond energy, inflation was compounded by Trump administration tariffs and a one-time rent data adjustment following a prior government shutdown.
By late May, the Bureau of Economic Analysis reported that the Personal Consumption Expenditures price index also hit 3.8%. Despite falling inflation-adjusted income, consumer spending increased by $111.1 billion, suggesting resilient demand even as the economy faced mounting stagflation risks.
