U.S. inflation forecast worsens as energy prices surge

U.S. inflation expectations for April 2026 moved higher after a sharp rise in energy prices, according to the Federal Reserve Bank of Cleveland’s April inflation forecast and its Inflation Nowcasting tool.

Officials’ data pointed to a jump in price pressures tied to higher oil and fuel costs following military operations involving the U.S., Israel, and Iran. The development was described as a risk to the Federal Reserve’s planned interest rate easing cycle and as a potential negative for Wall Street.

The energy shock was linked to a conflict that began on February 28 and led to Iran closing the Strait of Hormuz to oil shipping traffic. The closure was reported to have removed about 20 million barrels of liquid petroleum per day from global supply, an amount described as roughly 20% of the world’s demand.

In response, West Texas Intermediate crude oil prices were reported to have surged by as much as 79% per barrel. The rise in crude prices was described as feeding through into higher fuel costs for both households and businesses, increasing day-to-day expenses and operating costs.

U.S. pump prices reflected that pass-through. The national average price for a gallon of regular gasoline rose by about 40% over five weeks to $4.16 as of April 8, while diesel reached $5.67 per gallon.

Against that backdrop, the Cleveland Fed’s Inflation Nowcasting tool projected trailing 12-month U.S. inflation at 3.25% in April. The forecast was described as a notable increase from February’s figures and as a source of concern for consumer spending power and business cost structures.

Higher fuel and freight costs can affect a wide range of prices, particularly where transportation and energy are significant inputs. The information cited concerns that discretionary spending could weaken as more household budgets are absorbed by gasoline and other energy-related expenses, while companies face higher transportation and production costs.

Uncertainty remains around how persistent the energy-driven price pressures will be and how quickly they will filter through to broader inflation measures. The outlook also depends on how long the Strait of Hormuz remains closed to oil shipping traffic and how markets respond to changes in crude and refined product prices.