Inflation hits three-year high as consumer confidence drops

Inflation accelerated in April to its fastest pace in three years, putting pressure on American wallets and creating political difficulties for President Trump and congressional Republicans ahead of midterm elections in five months. The Commerce Department reported Thursday that inflation reached 3.8% in April compared with a year earlier, up from 3.5% in March. On a month-to-month basis, prices rose 0.4%, a slowdown from March's 0.7% increase but still higher than the Federal Reserve considers ideal.

The inflation report revealed broad price increases across multiple categories. Groceries, clothing, electricity, and gasoline all cost more than they did a year ago. These widespread gains suggest inflation is becoming more entrenched in the economy rather than remaining temporary.

Consumer confidence declined slightly in May as households grew concerned about rising costs. The Conference Board's consumer confidence index fell 0.7 points to 93.1, marking its first drop after three consecutive months of improvement. The decline came as gas prices remained elevated and inflation kept eroding purchasing power. A separate measure released by the University of Michigan fell to a record low this month.

Higher prices for food and fuel have outpaced growth in average wages, meaning most Americans can buy less with their paychecks than they could before. Polls show that Americans have turned negative on President Trump's economic policies, a shift that could hurt Republicans in the midterm elections. The contrast between struggling households and soaring stock markets, which have neared all-time highs, underscores the uneven impact of recent economic trends.

Mortgage rates climbed again this week, reaching their highest level in nine months. The benchmark 30-year fixed mortgage rate rose to 6.53% from 6.51% the previous week, according to Freddie Mac. Higher rates translate directly to larger monthly payments for borrowers. Even at the current level, rates remain below the 6.89% seen a year ago.

Jobless claims inched up but remain low, suggesting companies have not begun large-scale layoffs despite economic uncertainty. The Labor Department reported Thursday that 215,000 Americans filed for unemployment benefits, up from 210,000 the week before. The four-week moving average of claims rose by nearly 6,300 to 209,000. The total number of people currently receiving jobless aid rose by 15,000 to 1.79 million for the week ended May 16.

Unemployment claims have remained stable in a 200,000 to 250,000 weekly range since the economy recovered from the pandemic recession in 2020. However, this stability masks weak job growth. Last year, employers added fewer than 10,000 jobs a month on average, the slowest pace outside recession years since 2002.

Stock markets posted gains Friday, extending recent momentum. The S&P 500 climbed slightly, bringing its winning streak to six consecutive days. The index is headed for a ninth straight winning week, the longest such streak since 2023. All major indexes are on track to close May with solid gains and set new records, despite concerns about a U.S. conflict with Iran and its potential impact on inflation. Markets in Europe and Asia mostly rose as well.