INSIGHTS

On May 18, 2026

AAM Viewpoints — More Energy For Inflation

Consumer prices rose 0.6% in April, taking headline Consumer Price Index (CPI) from 3.3% to 3.8% year-over-year — the highest since May 2023. Core prices rose 0.3% in April, or from 2.6% to 2.8% year-over-year, the highest since October 2025. Although a “hot” print, we believe it is unlikely to shift the Federal Reserve (Fed) from its easing bias for now.

Energy prices continue to hit consumers

Outside of energy, most categories were relatively contained. Core good prices were flat in April, with tariff-sensitive goods categories rising just 0.1% in April, indicating a potentially waning impact from trade policy.

Food inflation rose 0.5% in April, with grocery prices like meats, poultry and fish and fresh fruits and vegetables showing notable gains, although “food away from home” inflation was relatively muted.

Figure 1: Energy drove inflation, while most other categories remain largely contained

Source: Bureau of Labor Statistics, Macrobond, Insight, May 2026. A CPI report was not produced for October 2026 due to the government shutdown.

Energy inflation continued to be driven by supply chain disruptions in the Middle East. Energy goods categories (particularly gasoline and fuel oil) continued to be impacted the most. Transportation services continued to be impacted through airline fares (Figure 2).

Source: Bureau of Labor Statistics, Macrobond, Insight, May 2026

Shelter rose as government shutdown disruption finally unwinds

Shelter, the largest component of the CPI, accelerated from 3% to 3.3% year-over-year, the highest since October 2025. However, this reflects the final lingering effects of last year’s government shutdown. Due to the way in which shelter is calculated, it has been artificially depressed since the shutdown, but the effect finally unwound in April. Ultimately, we expect shelter to continue its disinflationary trend, in line with leading rental market indicators.

 Figure 3: Shelter provided a potentially temporary boost to CPI

Source: Bureau of Labor Statistics, Macrobond, Insight, May 2026. A CPI report was not produced for October 2026 due to the government shutdown.

Conclusion: CPI better than headline suggests

The longer the energy shock lasts, the risks of it feeding through to more durable core services will likely rise. For now, we believe the Fed will still be minded to “look through” energy prices while longer-dated inflation expectations remain anchored and second-round effects appear muted.

While the Fed may increasingly be inclined to switch from an easing bias to a neutral one, we believe it would take a high hurdle to put a potential rate hike on the agenda.

CRN: 2026-0514-13468 R

The opinions and views of this commentary are those of Insight Investment and are not necessarily those of Advisors Asset Management. Any forecasts or opinions expressed herein are Insight Investment's own as of May 12, 2026, and subject to change without notice.