Inflation hits three-year high as Americans’ income and spending slow

Inflation increased to 3.8% in April compared with a year earlier, the Commerce Department reported Thursday. The figure marks the highest inflation rate since May 2023 and comes as Americans face rising costs for groceries, gasoline, clothing, and electricity.

The monthly increase was 0.4%, down from 0.7% in March but still above Federal Reserve preferences. Core inflation, which excludes volatile food and energy prices, rose to 3.3% in April from 3.2% in March, hitting its highest level since October 2023. However, core prices only increased 0.2% from March to April, indicating some slowing in inflationary pressures, according to analysts.

Americans’ inflation-adjusted incomes declined for the third consecutive month, falling 0.1% in April, while inflation-adjusted spending rose just 0.1%, according to the report. The data suggests financial stress among households, with some economists warning that inflationary pressures may persist amid ongoing supply shocks and rising costs for services and goods.

Economists noted that consumer spending growth slowed to 1.4% in the first quarter, down from 1.9% at the end of 2025. Business investment, particularly in artificial intelligence, increased at a 7% pace. The economy grew at a 1.6% annual rate in the first three months of the year, revised downward from an initial estimate of 2%, reflecting the impact of recent global and domestic developments.

Gas prices averaged around $4.50 per gallon for three weeks this month before slipping to $4.43, according to AAA. Prices for other goods and services, including dental care, auto repairs, and groceries, have also risen sharply. Analysts warn that ongoing inflationary pressures could lead the Federal Reserve to hold off on interest rate cuts this year, with some officials signaling the possibility of rate hikes instead.

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