Crude oil, AI chips, and rents: a triple whammy—US CPI may be "hot and sizzling" tonight.

US April CPI is expected to continue the hot momentum of March, driven by three factors: soaring energy prices, rising AI hardware costs, and “technical catch-up” in the data. The figures to be released tonight may once again shake the market, making the prospects for a Fed rate cut even more distant.

According to a Reuters survey, economists generally expect April CPI to rise 0.6% month-on-month, with core CPI up 0.4% month-on-month; for year-on-year increases, overall CPI is expected to rise to 3.7% and core CPI to 2.7%. If the data matches expectations, it will mark the largest annual increase since September 2023.

Previously, March CPI was already up 3.3% year-on-year, hitting a new high since May 2024. At that time, energy prices soared 10.9% month-on-month, with gasoline prices surging 21.2%. April’s inflation pressure is even more complex: on one hand, tensions with Iran are pushing up oil prices; on the other, the US Bureau of Labor Statistics (BLS) needs to make a technical upward adjustment to rent indices this month due to last year’s government shutdown. According to Bloomberg estimates, this “technical adjustment” could contribute about 10 basis points to core CPI alone.

Ahead of this data release, Fed officials have clearly stated that containing inflation is the top policy priority. At the April FOMC meeting, three members—Hammack, Kashkari, and Logan—voted against leaving any dovish wording in the statement. The meeting statement also revised the description of inflation from “still at elevated levels” to “at high levels,” which the market interpreted as a hawkish signal.

However, several analysts believe that as long as the acceleration in core inflation mainly stems from the technical adjustment to rents, rather than overheating fundamentals, the market likely won’t repricing for rate hike risks in the short term.

Rent “Technical Catch-Up”: The Biggest Variable for April Core CPI

April CPI faces a unique one-time factor: a “compensatory jump” in housing costs.

The 43-day federal shutdown last autumn meant the US Bureau of Labor Statistics (BLS) couldn’t collect some rent and Owner’s Equivalent Rent (OER) samples in October, so they were forced to adopt “forward estimation” methods, artificially suppressing that month’s increases. Now, the affected six-month rolling sample group is being re-included in April, amounting to making up two months’ worth of price changes in one report.

Nick Timiraos, dubbed “the new Fed newswire,” noted on X that forecasting agencies expect core CPI to rise in April, partly due to the reversal impact of this technical bias. According to institutional forecasts summarized by The Wall Street Journal, US April CPI is projected to be 0.56% month-on-month, 3.7% year-on-year, with core CPI at 0.36% month-on-month, 2.7% year-on-year, indicating stickiness above March levels.

Among them, Morgan Stanley forecasts the headline CPI to reach 0.64% month-on-month, the highest among institutions; Wells Fargo’s forecast for core CPI is the most pessimistic, with month-on-month rising to 0.50% and year-on-year to 2.9%, highlighting concerns over slowing progress in inflation easing.

Goldman Sachs expects OER category to rise 0.50% month-on-month in April, and rent category up 0.44%. Barclays points out this technical factor will provide an additional boost of about 10 basis points to core CPI for the month. Bloomberg further estimates that if this “technical disturbance” is excluded, the actual increase in April core CPI would only be 0.24%. Despite persisting price pressures in air tickets and AI-related products, overall inflation trajectory is expected to be relatively moderate.

Energy and AI Chips: The Other Two Drivers

In addition to the technical adjustment of rents, energy and technology hardware costs are also pushing up April inflation.

For energy, Goldman Sachs expects April energy prices to rise 4.6% month-on-month, with aviation fuel costs lifting airfares by 3%. The core driver of this round of oil price increases is US-Iran military conflict: International oil prices briefly surpassed $100 per barrel after the conflict erupted in March, and though they retreated somewhat after a ceasefire agreement in early April, they remain elevated.

According to Bloomberg data, average retail gasoline prices in April rose 11.6% month-on-month, becoming the largest single factor pushing up CPI overall. In addition, after food prices unexpectedly flatlined in March, April is expected to see acceleration, partly due to shipping disruptions in the Strait of Hormuz causing fertilizer shortages and higher ag production costs.

As for tech hardware, price pressures caused by supply chain bottlenecks have been relatively ignored by the market. Memory chips and CPUs, as consumer electronics, are seeing price jumps due to tight supply, and it’s expected that prices for computers and accessories will not ease this year. This contrasts with the conventional view that “tariff-related goods are experiencing deflation.”

Although after the US Supreme Court overturned Trump’s sweeping tariff policy in February, most economists believe the transmission effect of tariffs is basically over, AI-driven hardware demand is still independently raising prices for certain core goods.

Significant Divergence Within Core Inflation Structure

Despite headline CPI reading being high in April, clear divergence is seen within core inflation.

According to Bloomberg Economics, tariff-sensitive goods prices continue to fall, while prices for optional services such as hotels, car rentals, and entertainment are also declining. This pattern is similar to what occurred in April 2025 after Trump imposed new tariffs—optional service deflation partly offset the price pressures from tariffed goods.

Meanwhile, prices for supply chain bottleneck-related categories are still sticky. Prices for memory chips, CPUs, and other electronic components are persistently under pressure, and Goldman Sachs expects prices for computers and accessories to keep rising this year. In autos, Goldman Sachs expects used car prices to fall 0.4% month-on-month, new car prices to edge up 0.1%, and car insurance prices to rise 0.4%.

In addition, the medical insurance category will soon see a semi-annual data update. Goldman Sachs expects future six-period data to show about a 1.5% monthly decrease, which will exert a downward pull on core inflation but won’t affect PCE inflation.

Rate Hike Expectations Not Significantly Repriced, Room for Year-End Rate Cuts Remains

Given that April’s high inflation mainly stems from external shocks such as the Iran war and the technical adjustment to rents, the market does not expect to significantly reprice rate hike expectations. The Bloomberg Economics team believes inflation expectations remain well anchored and the Fed still has room to cut rates by 50 basis points by year-end.

Goldman Sachs expects core CPI monthly increases to stay around 0.2% in the coming months, but warns that if oil supply interruptions persist beyond expectations, upside risks to inflation cannot be ignored. JPMorgan cautions: if June data shows further acceleration in inflation, the bond market will face greater pressure and yields could rise.

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