12 May 2026
If you are covering the latest US inflation data, please see the following comment from Lindsay James, investment strategist at Quilter:
“US inflation climbed by 0.6% on the month and rose to 3.8% in the 12 months to April, ahead of expectations and driven largely by higher oil and petrol prices following the outbreak of conflict in the Middle East. The key question now is whether this shock remains confined to energy, or whether it begins to feed into broader areas such as transport and services. With core inflation also ticking up to 2.8% there are some early signs of spillover, including in airline fares which were up 20.7% on the year. However, this is being partially offset by a more limited impact from tariffs.
“Against that backdrop, Donald Trump is reportedly considering an 18.4 cents a gallon cut to the federal gas tax ahead of the midterm elections. Such a move would do little to offset the roughly $1 rise in gasoline prices since the conflict began, while potentially costing the US billions of dollars each month – money it really cannot afford.
“Despite the latest rise in inflation, markets continue to expect the Federal Reserve to leave rates unchanged for now. However, there is a growing possibility that the next move is up rather than down, even as central bankers argue that supply driven shocks should be looked through. With Kevin Warsh set to take up the chairmanship imminently and the June meeting nearing, the Fed is reaching something of a fork in the road.
“A rapid de-escalation in the Middle East could see oil prices fall, easing inflation pressures and potentially even reopening the door to rate cuts later this year. However, depleted reserves and further increases in oil prices from June onwards would raise the risk of inflation becoming more rapid and with broader spillover effects. Markets are clearly betting on the former outcome, but we are fast approaching the moment of truth.”
