WashingtonUS energy prices rose 17.9% in April, Bureau of Labor Statistics data show.
Iran’s closure of the Strait of Hormuz, through which a fifth of global oil flows, drove the Consumer Price Index to 3.8% — a 3-year high.
Rate cuts this year are off the table, with rate hikes under consideration, analysts said.
Sources: TRT World, Albanian Daily News
THE PASSTHROUGH
Energy is roughly 7% of the US CPI basket, but its volatility makes it the dominant swing factor month to month. A sustained 20% jump in energy prices mechanically adds about 1.4 percentage points to headline inflation before any second-round effects through transport, food, and manufacturing.
THE CHOKEPOINT
Roughly a fifth of global oil — about 20 million barrels per day — moves through the Strait of Hormuz, a 33 km channel between Iran and Oman. Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, and Iran all ship through it. No other waterway concentrates this much of world supply.
THE 1973 PRECEDENT
The OPEC embargo following the Yom Kippur war quadrupled oil prices in five months. US CPI ran above 11% in 1974 and Fed Chair Arthur Burns kept rates too low for too long, anchoring inflation expectations for a decade. Volcker's 1979 rate hikes — to 20% — were the eventual price of that delay.
WHY RATE CUTS DISAPPEAR
The Fed cuts rates when inflation is falling toward 2% and the labor market softens. An energy-driven CPI spike does the opposite — it raises headline inflation and, if sustained, lifts inflation expectations. Cutting into that would signal the Fed has abandoned its mandate; hiking signals it has not.
THE STAGFLATION TRAP
An oil shock raises prices and lowers output at the same time — the worst combination for a central bank. Tight policy fights inflation but deepens the recession; loose policy supports growth but lets inflation entrench. The 1970s taught the Fed that anchoring expectations matters more than cushioning growth. That doctrine has held for 45 years.