On May 12, 2026, the U.S. Bureau of Labor Statistics released April inflation data: the CPI rose 3.8% year-on-year and 0.4% month-on-year, hitting a new high since May 2023; core CPI (excluding food and energy) increased 2.8% YoY and 0.3% MoM, with inflation stickiness exceeding market expectations. Data show energy prices were the main driver: amid escalating U.S.-Iran geopolitical tensions and rising shipping risks in the Strait of Hormuz, gasoline prices rose 2.3% MoM and fuel oil 5.1% MoM; food prices edged up 0.2% MoM, while service prices (housing, healthcare, transportation) remained elevated, with housing costs up 4.5% YoY—the largest contributor to core inflation.
The hotter-than-expected inflation has completely reversed market expectations for Federal Reserve rate cuts: previously, markets priced a first cut in June and 75 basis points of easing for the full year, but now the probability of any 2026 cuts is below 30%, with “higher for longer” rates becoming the consensus. Uncertainty over the Fed’s policy path has risen: current Chair Jerome Powell’s term ends May 15, and the Senate could vote as early as May 13 to confirm Kevin Warsh as the next Chair, with markets eyeing his hawkish stance on inflation.
Reinforced higher-rate expectations triggered a chain reaction across global financial markets: the U.S. Dollar Index rose to 98.29, a one-week high; the 10-year U.S. Treasury yield topped 4.46%, and the 30-year yield reclaimed the 5.0% threshold; U.S. stocks faced pressure, with the S&P 500 and Nasdaq pulling back from record highs, led by chip stocks; gold fluctuated violently, spot gold tumbling 2% intraday before rebounding to settle at $4,715/oz; international oil prices extended gains, with Brent crude nearing $103/barrel.
Analysts believe U.S. inflation stickiness stems from a resilient labor market, strong service demand and energy supply risks, making a quick near-term decline unlikely. The Fed may be forced to keep rates high through late 2026 or even resume hiking, which will intensify global capital flight to the U.S., emerging market currency depreciation and debt pressures, challenging the fragile global economic balance of “high growth + high inflation + high rates”.
