CPI Inflation Surges Past Fed Rates as Core Services, Gasoline, and Electricity Spike

The Bureau of Labor Statistics reported that the all-items CPI spiked by 0.64% month-over-month in April (8.0% annualized), with year-over-year inflation reaching 3.81%, the worst since April 2023. Core services inflation jumped 0.50% (6.2% annualized), driven by housing, lodging, and airline fares. Rent of primary residence rose 0.54% (6.7% annualized), and Owners' Equivalent Rent increased 0.53% (6.6% annualized), both reflecting corrections of prior distortions. Airline fares spiked 2.8% month-over-month and 20.7% year-over-year. Gasoline prices surged 5.4% month-over-month (28% year-over-year), while electricity prices rose 2.1% month-over-month (6.1% year-over-year), with the latter driven by data center demand from the AI bubble. Food at home jumped 0.68% month-over-month (8.5% annualized), the largest increase since August 2023. The Fed's policy rates of 3.5% to 3.75% are now negative in real terms against 3.8% CPI, a stimulative condition. Core CPI rose 0.38% month-over-month (4.6% annualized), accelerating to 2.8% year-over-year. Durable goods prices dipped in March and were flat year-over-year.