Consumer prices in April were the highest they have been in almost three years, triggered by rising oil prices and the closure of the Strait of Hormuz amid the Iran War, the Commerce Department reported Thursday. 

The report, the Personal Consumption Expenditures, the Federal Reserve’s preferred metric for inflation, rose by an annual rate of 3.8% in April from 3.5% in March, and from 2.8% in February. This is the first inflation report since Kevin Warsh was sworn as the new Fed chairman.

While economists had expected readings of 3.8%, as surveyed by Dow Jones, the price was well above the Federal Reserve's preferred 2% target. 

Core PCE, which excludes food and fluctuating energy prices, rose to 3.3% from 3.2% in March, in line with economists’ forecasts. 

The biggest hike in April was at the gas pumps, but prices also rose for housing, utilities, recreation, and food services. The report also showed that annual personal income growth slowed to 2.5% below the inflation pace, indicating that American incomes were not keeping up with prices.

Personal savings decreased from 3.6% in March to 2.6% in April, the lowest level since 2022, suggesting some consumers were also struggling to retain extra funds. Consumer spending rose by just 0.1% last month, falling from 0.3% the previous month, when adjusted for inflation. 

Fed officials see holding central bank interest rates steady at a benchmark rate of 3.5% and 3.75%, but are considering a rate hike at the end of this year, according to CME FedWatch. 

A day before the report was released, the Federal Reserve Governor Lisa Cook said that she expected inflation to fall back, but was prepared for a rate hike if inflation persisted. She also said that artificial intelligence developments could be factoring into higher prices.

“After five years of above-target inflation, I am particularly attuned to the risk that elevated inflation will become embedded in price and wage-setting behavior,” Cook said, in a speech at Stanford University on Wednesday. “I am prepared to raise rates if the expected disinflation does not appear in a timely manner.” 

Earlier in the year, the central bank had predicted an interest rate cut in 2026, now less likely with rising energy costs. This also comes as President Trump was pushing to lower central bank borrowing rates for consumers and businesses to boost economic growth, though he suggested at his swearing-in ceremony that he intends Warsh to operate independently. 

“Honestly, I really mean this ... I want Kevin to be totally independent,” Trump said. “I want him to be independent and just do a great job. Don’t look at me or anybody.”