Consumers in the United States are feeling the crush of rising prices. But while the war with Iran gets much of the attention, when volatile products such as food and energy are stripped out, core goods prices are climbing at the fastest pace since Ronald Reagan was on his way out of the White House.
The personal consumption expenditures price index, the measure of goods and services inflation most closely watched by the U.S. Federal Reserve, jumped 3.8 per cent in April from the year before. That was the fastest rate in three years, and it was heavily driven by soaring gasoline prices.
But below the surface, prices for core goods have risen spectacularly.
Two things appear to be at play: tariffs and the artificial intelligence boom.
President Donald Trump’s trade wars have made imports more expensive, while giving a green light to some U.S. companies to hike prices.
In a note published by the U.S. Federal Reserve last month, researchers analyzed the impact of tariffs on core goods categories and determined import duties explained much of the increase in prices up to February, 2026. That pressure is set to ease, at least for now, after the U.S.’s top court overturned Mr. Trump’s emergency tariffs, though other tariffs remain in place.
Yet tariffs aren’t entirely to blame, either. Another report published last month by researchers at the Federal Reserve Bank of Minneapolis found prices for some goods are surging more than can be explained by tariffs alone and they pointed to AI-induced demand for electronics equipment, in particular.
Indeed, in Wednesday’s PCE report, the tech category of goods jumped 10 per cent annually.
Either way, the latest report should “abolish” any inclination new Fed Chair Kevin Warsh has to quickly cut interest rates. Mr. Warsh has argued that efficiencies from the mass adoption of AI will suppress inflation.
Rate watchers, such as Thierry Wizman, a strategist at Macquarie Group, aren’t convinced. With PCE inflation running above the central bank’s target, he wrote in a research note that “the Fed cannot maintain credibility and an easing bias simultaneously, regardless of the incoming Chair’s views on long-term productivity growth.”
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