Oil supply shocks lift U.S. inflation to 3.8%
Oil supply disruptions tied to the U.S.-Iran conflict raised annual U.S. inflation to 3.8%, lowering market odds of a Federal Reserve rate cut by June 2026.
U.S. annual consumer inflation rose to 3.8% in the latest reading, the highest rate since May 2023. The increase followed sharp jumps in gasoline and fuel oil prices after oil supply routes were disrupted amid the U.S.-Iran conflict and partial closures of the Strait of Hormuz.
Prediction markets cut the odds of a Federal Reserve rate reduction by June 2026 to about 2.4%, down from roughly 3% a week earlier. A market gauge showing the probability of no rate cuts in 2026 rose to about 61.9% from 57% the previous day.
Higher energy costs pushed the headline consumer price figure upward. Traders and market participants adjusted their expectations for the timing of monetary easing in response to the inflation reading.
The Federal Reserve will consider incoming reports on consumer prices, wages and employment when setting policy. Officials must weigh inflation developments against growth indicators.
Developments in oil supply and tensions in the Gulf could affect future inflation readings. Further disruptions to crude shipments or spikes in fuel prices would likely keep upward pressure on consumer prices, while eased supply strains could reduce that pressure.
Market participants are watching Federal Open Market Committee statements, remarks from Federal Reserve Chair Jerome Powell and regular economic releases such as monthly CPI and employment data for signals on policy timing.
The 3.8% annual rate reverses earlier declines and is reflected in market pricing that now shows a lower chance of Fed rate cuts in 2026.
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