After US inflation came in unexpectedly higher in April, wealth managers discuss the impact and the possibility of potential interest rate hikes or cuts.

US annual inflation rose to 3.8 per cent in April, against market expectations of 3.7 per cent, driven by the oil shock triggered by the Iran conflict. Annual core inflation, excluding energy and food, also climbed to 2.8 per cent in April above market expectations of 2.7 per cent.

The rise comes after the US Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan all left interest rates on hold last month, as expected. Inflation is front of mind amidst the US-Iran conflict, fraught geopolitics and rising energy prices. See here.

Here are reactions from wealth managers to the latest rise.

Isaac Stell, investment manager at Wealth Club
“US inflation continued to move higher in April, as the continued fallout from the Strait of Hormuz closure continues to bite, pushing energy and transport costs sharply higher. The reading is the highest since May 2023 with the energy component of the inflation figures rising 3.8 per cent in April and accounting for over 40 per cent of the increase. The oil shock triggered by the Iran conflict shows little sign of easing, and with a counter peace plan rejected, there is no clear end in sight. As a result, elevated oil prices are set to remain a persistent source of inflationary pressure, prolonging the pain for consumers, particularly at the pump.

“Against this backdrop, rate rises are now firmly back on the table as policymakers look to contain a price spiral that is starting to take hold. With Jerome Powell’s term as Fed chair drawing to a close, the incoming chair, Kevin Warsh, despite his dovish nature, may strike a more hawkish tone, with the reality of policy setting leaving little room for maneuver.”

Josh Jamner, senior investment strategy analyst at ClearBridge Investments
“Fed fund futures markets are now pricing the chance of a rate hike at a better than a coin-flip in March 2027. While rate hikes are possible should inflationary pressures continue to build, the potential for de-escalation of the conflict in the Middle East and muted strength in the labor market should keep the Fed on hold for the time being, with cuts still more likely than hikes in 2027 in our view.”

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“US inflation stayed hot in April, surprising to the upside, with consumer prices up 0.6 per cent on the month and 3.8 per cent year on year, leaving little room for near-term policy easing. Core inflation also firmed, signaling that price pressures are no longer just an energy story and that disinflation remains uneven. The data reinforces a higher-for-longer rates outlook, with the Fed likely to stay on hold until there is clearer evidence of cooling in underlying inflation. Energy remains the key swing factor. The Iran-driven oil shock has fed straight into headline inflation, with risks of second-round effects building over the coming months. Central banks are unlikely to react aggressively to a geopolitical oil spike, but persistent energy inflation raises the bar for rate cuts rather than hikes. For markets, this mix supports higher yields, a firmer dollar and limits the upside for equities sensitive to interest rate rises, especially after a strong rebound.

“Higher oil prices act as a tax on growth. If sustained, they point to softer activity later in the year rather than an immediate slowdown. In this environment, quality matters more than momentum, with balance-sheet strength and pricing power becoming increasingly important for equity investors. The macro backdrop still points to slower but resilient growth, though prolonged energy stress would increase downside risks to both growth and risk assets.”

Carolyn Bell, lead portfolio manager of the Stonehage Fleming Global Best Ideas Equity fund
"The rise in gas prices fed through again to April US CPI data, as the headline figure grew 0.6 per cent month-on-month, slightly higher than expectations. US consumers – and crucially, given the forthcoming midterms, US voters – are feeling the effects of the Iran war at the pump. The narrower read which excludes food and energy was also slightly higher than expected at 0.4 per cent month on month."

Arielle Ingrassia, associate director, investment specialist at UK wealth manager Evelyn Partners
“The US’s Consumer Price Index (CPI) came in slightly hotter than expected in April, with headline inflation printing at 0.6 per cent month-on-month and 3.8 per cent year-on-year, while core inflation rose to 2.8 per cent, reinforcing concerns that recent inflation pressures are becoming more persistent.

“The upside surprise was again driven primarily by energy, with gasoline and broader fuel costs remaining elevated amid ongoing disruption across global oil markets. However, the details of the report suggest inflation strength was not limited to energy alone.The strongest upward pressure came from shelter and airline fares, with housing costs boosted by one-off rent and owners’ equivalent rent adjustments linked to distortions from last year’s government shutdown. Higher jet fuel costs also pushed airfares sharply higher.

“At the same time, the report still showed only limited evidence of fully broad-based second-round inflation effects. Some goods categories remained softer, and slower wage growth continues to suggest underlying demand-driven inflation is not yet reaccelerating materially. That leaves the overall picture closer to an energy and transport shock than a full inflation spiral – at least for now. For the Federal Reserve, the release reinforces the likelihood that interest rates stay higher for longer. Policymakers remain firmly in wait-and-see mode, and this stronger-than-expected inflation print is likely to push expectations for rate cuts even further out.”