AILSA CHANG, HOST:
Consumer prices surged 3.8% in April from a year ago. That's according to data released today from the Department of Labor.
SACHA PFEIFFER, HOST:
It's the highest annual reading since May 2023, and it comes as energy prices have spiked as a result of the war with Iran. Across the country, people are feeling the effects.
DANIEL HEFFNER: I've been noticing the rising prices of groceries at the store, and for a while, I didn't purchase things because they were too expensive, and it was bad for my health. I lost weight.
CHANG: That is Texas resident Daniel Heffner.
HEFFNER: I really - I had to move past that because I wasn't eating enough. I just had to pay more for groceries, eventually.
PFEIFFER: Heffner lost his engineering job in 2024 and now works as a ride-share driver and for delivery apps like DoorDash. With rising gas prices, it's been hard to make ends meet.
HEFFNER: But when I add up all my cost and subtract that from the revenue that I earned, I'm finding that the hourly rate is dropping, you know, maybe below $15 an hour sometimes.
CHANG: Heather Becker is an administrative assistant in Dilworth, Minnesota. She also owns a trucking company with her husband.
HEATHER BECKER: If the truck brings in $12,000 a week, 3,500 of that is fuel right now. I mean, your profit is gone, or it's little. I mean, you have a profit, but it's not like what it was.
PFEIFFER: Becker says decreased profits have affected other business decisions, like maintenance.
BECKER: We needed a welder because my husband does all his own maintenance. So the welder - we put off for a year.
CHANG: Despite the hit to her business, Becker and her husband consider themselves lucky.
BECKER: Thank goodness it's only two of us, but I couldn't imagine being a family - trying to feed a family right now. I get a 2%, you know, bump in pay at my job, but that's - it's still not - you know, it's still not covering what goes up.
FENNEL MARXHAUSEN: I've been saving for this car since I was 15.
PFEIFFER: Twenty-two-year-old Fennel Marxhausen is a college student in Denver, Colorado. He works as a grocery store cashier and really needs his car.
MARXHAUSEN: It's a huge deal for me to be able to have that because it provides me a lot of job security. Going on the bus to try to get to work when your job has a rule of if you're more than five minutes late, you're going to get written up can be really stressful 'cause the bus is late a lot.
PFEIFFER: The additional costs are also driving him to make tough choices.
MARXHAUSEN: I'm trying not to buy as much food, not really getting any, like, things that would be nice, like buying coffee at work.
CHANG: Now, Marxhausen is no stranger to hardship. He has experienced homelessness before and says this moment is also tough.
MARXHAUSEN: It feels much scarier, and, like, there's a lot more pressure on me because I feel like I have a lot more that I can lose now that I'm, like, doing good and not, like, homeless.
PFEIFFER: What are the factors that have U.S. inflation up 3.8% from last year? Darian Woods from The Indicator from Planet Money is here with us to break down the rise in prices. Hi, Darian.
DARIAN WOODS, BYLINE: Hello.
PFEIFFER: Let's start with the price of oil. Where does that factor into current inflation rates?
WOODS: Yeah. Oil is the big factor driving up inflation. So with the Strait of Hormuz closed, you've got 1 billion barrels of oil that hasn't made it into the globe. And so Americans are seeing that rising fuel cost - $4.50 a gallon is the recent national average. And so this means that energy prices accounted for more than 40% of the rise of the consumer price index in April. That said, there are other categories that are going up, too. So if you go to the supermarket, you'll notice that food prices are up 3.2% as well.
PFEIFFER: I have noticed. And do those higher food prices also tie back to the U.S. war in Iran?
WOODS: Absolutely. But the bad news is that we have spoken to a food economist on The Indicator, and he estimated it'll take about six months for the effects from the Iran war to be really felt in grocery prices. And that's because of all the input costs into making food. So you've got the high diesel prices making tractors and the trucks that deliver food more expensive to run. And also because of nitrogen fertilizer, which is a lot more expensive at the moment, and that relies on natural gas, a lot of which has been blocked in the Strait of Hormuz.
PFEIFFER: So food prices could go up even more.
WOODS: Yes.
PFEIFFER: Darian, any sense of how the Federal Reserve will respond as it continues to decide where to set interest rates?
WOODS: Yeah. So 3.8% is way outside the Fed's comfort zone of 2% inflation. And people talk about the Federal Reserve being composed of hawks and doves - that's kind of the language. People want higher interest rates and lower interest rates. And on the more dovish side of the equation, some people on the Fed's board may argue that it should just ignore temporary shocks to prices, like we're seeing with the Strait of Hormuz blockades. They might argue that this is transitory and will be addressed once the war ends and the price of oil goes back down. But of course, we heard the term transitory in the last inflation shock around the time of the pandemic.
PFEIFFER: Right. And that inflation turned out to be much more lasting.
WOODS: Yes. So one of the big problems then and now is inflation expectations. And so that's what happens at a higher risk with every passing day that the blockades go on. So people all around the American economy will start to expect higher and higher inflation, which can turn into a self-fulfilling prophecy. So people will ask for higher wages. Businesses might raise their prices. And the New York Fed's latest survey does show that Americans believe inflation will be higher in a year.
PFEIFFER: What's a chance that things could unfold differently this time? I mean, President Trump, as you know, recently said, the price of gas would - in his words - drop like a rock once the war with Iran ends.
WOODS: Yeah. That is likely true. But the 3.8% inflation we're seeing isn't only going up because of the Strait of Hormuz. The price of rent is also shooting up. So this report we got this morning showed the cost of shelter rising 3.3% over the year, and that's not related to the war. So that does imply there is this larger inflation issue going on in the U.S.
PFEIFFER: And all those will likely factor into the Fed's thinking at its next meeting.
WOODS: Yeah. So the Fed's getting a new chair, Kevin Warsh, and there's a lot of chatter about whether or not he might acquiesce to President Trump's demand for lower interest rates to boost the economy. But, you know, interest rates are decided by this committee. And so the ones who are more worried about inflation might push for an increase in interest rates, and that's to slow down borrowing and spending and to bring inflation down.
PFEIFFER: That is Darian Woods from The Indicator from Planet Money. Darian, thank you.
WOODS: Thank you. Transcript provided by NPR, Copyright NPR.
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