Truflation US Inflation Report & the BLS CPI Forecast - April 2026

Economic Overview

The U.S. economy regained momentum in the first quarter of 2026, supported by robust consumer spending and continued investment tied to the accelerating AI infrastructure buildout. Real GDP expanded at an annualized rate of 2.0% in Q1, below market expectations of 2.3% but a significant acceleration from the 0.5% pace recorded in Q4 2025.

The improvement was driven primarily by a surge in business investment, particularly in equipment spending associated with AI-related capital expenditures. Government spending also contributed positively following increased federal employee compensation after the resolution of the government shutdown. Consumer spending remained the largest contributor to growth.

Overall, the core economy remains resilient. The AI investment cycle, combined with the ongoing effects of fiscal stimulus and tax cuts, is beginning to filter through into broader economic activity. These forces are likely to continue supporting growth over the coming quarters. The Atlanta Fed GDPNow model currently estimates Q2 GDP growth at 3.7%. However, rising energy prices are expected to dampen some of this momentum and could weigh on household spending and business margins as the year progresses.

Exhibit 1 – GDP and contribution to GDP percentage growth vs the preceding period 

Source: Bureau of Economic Analysis 

Retail sales continue to reflect resilient consumer demand as sales rose 1.7% month over month in March, accelerating from a revised 0.7% increase in February and marking a 4.0% rise compared with March 2025. While higher gasoline prices accounted for part of the increase, spending strength was also evident in discretionary categories, particularly online retail sales, which rose 10% year over year.

Some of March’s strength likely reflects a rebound from severe weather earlier in the year, while tax refunds and fiscal stimulus continue to offset the drag from rising energy costs. However, this balance may become more challenging in the months ahead as gasoline prices climb. Consumers are becoming increasingly selective and cautious in their spending behavior, although stronger disposable income growth among lower-income households has continued to support consumption.

Pay growth continues its gradual long-term moderation. According to Truflation data, pay increased 4.3% year over year in April, unchanged from March but continuing the broader cooling trend from the peaks seen in prior years; suggests a more balanced labor market and a slower pace of compensation growth. After adjusting for inflation, real wage gains in recent months remain positive and continue to support purchasing power.

Exhibit 2 – Truflation YoY Pay Growth vs Monthly Retail Sales Growth YoY

Source: Truflation and the U.S. Census Bureau 

The personal savings rate declined by 0.3 percentage points in March to 3.6%, the lowest level since October 2022. This marks the second consecutive monthly decline, bringing the cumulative drop to 0.9 percentage points. 

Excluding the inflation-driven squeeze experienced during 2022, the current savings rate is the lowest since the Global Financial Crisis. The decline reflects stronger consumer spending alongside rising expenditures on gasoline, electricity, and healthcare, forcing many households to draw down savings to maintain living standards.

Exhibit 3 – Personal savings rate percentage of disposable income

Source: Bureau of Economic Analysis; Personal Income & Outlays Report

Labor Market: Gradual Thawing Beneath the Ice

The labor market has remained in a prolonged “low-hire, low-fire” environment, though recent data suggest activity may finally be beginning to improve. According to the JOLT report, the hiring rate increased to 3.5% in March from 3.1% in February, marking the strongest pace of hiring in two years. Importantly, hiring gains broadened beyond healthcare for the first time in several quarters. Industries experiencing stronger hiring included transportation, warehousing, education, professional and business services and food services.

This suggests the labor market may be slowly emerging from its frozen state. Quits also edged higher to 2.0% from 1.9% in February, signaling slightly improved worker confidence in finding new employment opportunities. Nevertheless, uncertainty remains. The evolving geopolitical environment and rising energy prices continue to pose risks to hiring activity and broader labor market conditions.

There are also persistent signs of underlying weakness. Approximately 25% of unemployed workers in March had been unemployed for six months or longer, up from 18% in February 2023. The extended low hiring environment has made re-entry into the labor market increasingly difficult for many workers.

This dynamic may also help explain the continued expansion of the gig economy. According to the MBO Partners State of Independence 2025 report, the number of independent workers, including freelancers, contractors, side-gig workers, and incorporated self employed individuals, reached 72.9 million, representing nearly 45% of the U.S. labor force. This was modestly higher than the 72.7 million recorded in 2024, and private forecasts suggest continued expansion if current trends persist.

Exhibit 4 – Growth in U.S. Freelance Workforce: Actual (2019-2025) & Projected (2026-2028)

Source: Carry

Signs of labor market improvement continued into April, with stronger-than-expected job creation providing further evidence that hiring activity may be beginning to recover. ADP reported that private payrolls increased by 109,000 in April, a significant acceleration from 61,000 in March. Meanwhile, the BLS employment report showed nonfarm payrolls rising by 115,000, following a solid gain of 178,000 in March.

Exhibit 5 – Three-Month Rolling Average Employment growth, all showing positive momentum

Source: Bureau of Labor Statistics, ADP and Revellio Labs

The unemployment rate remained stable at 4.3%, though this largely reflected a decline in labor force participation. Meanwhile, the employment-to-population ratio fell to 61.8%, its lowest level since November 2021.

As a result, the Federal Reserve is likely to remain patient and data dependent, although the latest meeting revealed a rare and significant 8–4 split among policymakers. While the majority supported holding rates steady due to inflation risks stemming from Middle East tensions and rising energy prices, four members dissented with three officials, including Beth Hammack, Neel Kashkari, and Lorie Logan, who thought the committee should have removed language from its post- meeting statements that indicated the Fed’s next move would be a rate cut. Given that inflation is more energy-driven, it might suggest that the FOMC's focus will switch to the labor market. Market expectations currently align with a pause at the June meeting, with a 94% likelihood that rates will remain unchanged.

Public Debt Now Exceeds GDP

For the first time since World War II, U.S. publicly held debt has exceeded the size of the economy, highlighting the growing fiscal burden facing the federal government. Publicly held debt reached $31.3 trillion as of March, equivalent to 100.2% of GDP. While the United States is not the first nation to carry debt larger than its economy, the continued rise in debt levels increasingly limits fiscal flexibility during future crises, whether financial, geopolitical, or domestic.

Higher debt levels can crowd out private investment as government borrowing competes for capital that might otherwise support innovation, infrastructure, and productive economic growth.

Unlike the debt surge during World War II, the current rise reflects a combination of persistent fiscal deficits, tax cuts, rising interest costs, and demographic pressures associated with an aging population. According to Congressional Budget Office projections, publicly held debt could rise to approximately $53 trillion by 2036—roughly 70% above current levels.

Exhibit 6 – The US National Publicly Held Debt that could reach $53 trillion by 2036

Source: Federal Reserve Bank of St Louis, Congressional Budget Office

The broader national debt, which includes intragovernmental holdings, is now approaching $39 trillion, according to the U.S. Treasury.

The risks associated with rising debt levels are significant. Increasing interest payments could crowd out federal spending priorities, while deteriorating fiscal credibility could eventually undermine investor confidence and contribute to credit downgrades. Persistent deficit spending may also place upward pressure on inflation over time.

At present, strong economic growth and sustained global demand for U.S. Treasury securities suggest markets do not perceive an immediate fiscal crisis. However, if current debt trajectories continue unchecked, long-term sustainability risks will become increasingly difficult to ignore.

Inflation Status - Gasoline Continues to Dominate the Story

The defining inflation story of April remains energy, particularly oil and gasoline prices.

WTI crude oil prices experienced significant volatility throughout the month, beginning April at $100.12 per barrel, falling to $82.59 mid month, before rebounding sharply to close at $105.07. The return above the $100 threshold continues to translate into higher fuel costs for consumers.

According to the Truflation U.S. CPI Gasoline Index, regular gasoline prices rose from $4.12 per gallon at the start of April to above $4.40 nationally by month-end.

Truflation continues to caution that energy-related price shocks may not yet be fully reflected in consumer prices. Supply disruptions linked to instability surrounding the Strait of Hormuz are still moving through global supply chains with a lagged effect. Although strategic reserve releases have provided some support, they have so far done little to meaningfully lower prices at the consumer level.

Even if shipping routes normalize quickly, restoring disrupted energy supply flows may take several months, implying elevated energy prices are likely to persist in the near term.

The administration’s announced release of 172 million barrels from the Strategic Petroleum Reserve (SPR) is already visible in inventory data. SPR inventory has already been depleted by 17.2 million barrels from late March to April 24.

The downstream effects on inflation continue to intensify. Gasoline prices surged 20% month over month in March and a further 13.7% in April. National gasoline prices now sit just 48 cents below the all-time high of $5.016 per gallon, while diesel prices are only 14 cents below record levels. This continued rise in fuel costs has placed additional upward pressure on headline inflation in April and is expected in May.

Exhibit 7 – Truflation Gasoline Prices vs WTI Crude Oil

Inflation Forecast - Elevated but will Gradually Moderate

Truflation projects the U.S. BLS reported CPI annualized inflation rate at 3.7% year over year for April, slightly above the market consensus of 3.7%.  Current forecast ranges are relatively wide again from 3.6% to 3.9%.

Beyond gasoline, the acceleration in inflation is being driven by utilities, apparel, and transportation in general, highlighting the broadening effects of higher energy costs across both goods and services.

Truflation Goods prices rose 1.37% month over month, reflecting persistent supply chain disruptions, higher energy and labor costs, and the repricing of inventories to reflect earlier tariff increases, particularly within apparel categories. The recent announcement of additional tariffs, especially targeting European autos, is expected to sustain upward pressure on goods inflation in the coming months.

This trend is reinforced by the ISM Manufacturing Prices Index, which surged to 84.6 in April, the highest level since June 2022 and one of the sharpest three-month increases on record. The rise reflects the transmission of geopolitical and energy-related disruptions into manufacturing input costs.

Exhibit 8 – Truflation Key Inflation Metrics: Goods vs Services vs Core

Services inflation remains more moderate with Truflation Services prices increased 0.4% month over month, driven primarily by still elevated labor costs and policy-driven increases in healthcare and education prices. Encouragingly, underlying wage pressures continue to cool gradually, helping offset some of the inflationary effects tied to energy and geopolitical developments.

The ISM Services Prices Index remained steady at 70.7 in April, suggesting that slowing labor cost growth is beginning to offset part of the upward pressure from energy markets. Historically, supply-driven inflation shocks, such as those observed following the 2018 tariff cycle, have eventually moderated as supply chains adjusted. A similar pattern may emerge over the coming quarters, though normalization is likely to be gradual.

Exhibit 9 – Truflation YoY Inflation drivers by Category

In April, the largest upward contributors to inflation were utilities, clothing and transportation, while household durables, food and housing exerted the largest downward pressures.

Sector-Specific Inflation Drivers

• Clothing & Footwear: +1.9% MoM | +2.7% YoY. Apparel prices are being impacted by the delayed pass-through of tariffs as well as new tariffs on imported goods, particularly for high-demand items and new spring/summer collections. In addition, some consumers are accelerating purchases in anticipation of further price increases and potential product shortages later in the year.

• Utilities: +1.2% MoM | +7.1% YoY. Utility prices continue to rise due to surging electricity demand from AI data centers, grid infrastructure upgrades, and higher energy costs. Utilities are increasing investment in power generation, transmission, and grid resilience, with these costs increasingly passed through to households. Climate-related infrastructure spending and growing electrification trends, including electric vehicles and electric heating, are also contributing to higher electricity bills.

• Transportation: +2.6% MoM | +6.1% YoY. Beyond the surge in gasoline prices, which rose a further 13% month over month in April, public transportation and airline costs also increased sharply, rising 13.4%. Airlines continue to face higher jet fuel costs driven by elevated commodity prices, alongside strong summer travel demand that has allowed carriers to pass these costs on to consumers. Despite rising fares, airline passenger volumes have remained relatively stable compared with March levels, which themselves surged 22% from February. As a result, there is little expectation of meaningful price relief in the near term. Public transportation costs are also rising due to major urban transit systems implementing fare increases of 8–15% in early 2026.

• Household Operations: +0.1% MoM | +5.2% YoY.  Household operations prices have remained broadly flat in April as weaker consumer confidence and slower economic growth reduced demand for major purchases such as appliances and furniture. Consumers continue shifting spending toward services rather than goods, while elevated inventories and selective discounting have limited broader price increases despite ongoing supply chain and input cost pressures.

• Food & Non Alcoholic Beverages: +0.1% MoM | +0.1% YoY. Food prices continued to rise modestly in April, supported by elevated transportation costs, persistent labor shortages and ongoing supply chain pressures. While overall grocery inflation has slowed significantly compared with prior years, certain categories such as coffee and beef remain under pressure due to supply shortages and unfavorable agricultural conditions. Restaurant prices continue to rise faster than grocery prices, reflecting higher labor and operating costs.

• Housing: +0.3% MoM | -4.6% YoY. Housing presents a mixed picture. Owner-occupied and rental components are showing modest growth, while other lodging categories, such as hotels and short-term rentals, continue to rise more sharply. 

  • Rentals: Rental price growth remains subdued despite modest seasonal increases entering the summer leasing period. A wave of new apartment supply and elevated vacancy rates have created one of the most renter-friendly environments in years.

  • Owned: Prices are rising modestly, even though the market remains highly regionalized, with the North East experiencing solid price appreciation due to limited inventory, while parts of the South and Southwest are seeing softer prices. Elevated mortgage rates continue to weigh on affordability and sales activity and in the short term, this trend is expected to continue.

  • Short-term lodging: In contrast, hotel prices continue to rise sharply in April 2026, with average daily rates rising roughly 2%–3% year over year amid strong travel demand. Popular domestic destinations continue to see above-average pricing, while anticipation surrounding the 2026 FIFA World Cup is already driving sharp increases in some host cities. As a result, consumers are increasingly shifting toward lower-cost and mid-range accommodation options, with little expectation of meaningful price relief in the near term.

Inflation Outlook - Continues to be Elevated in the Near Term

U.S. M2 money supply reached a record $22.6 trillion in March, increasing 4.6% over the past year. Although money supply growth had previously remained subdued, recent data indicate acceleration since the ending of Quantitative Tightening in December 2025. The Federal Reserve has shifted toward maintaining stable liquidity conditions and preserving ample reserves within the financial system. Maturing Mortgage Backed Securities are being reinvested into Treasuries, stabilizing the balance sheet while gradually changing its composition.

While recent money supply growth remains broadly consistent with inflation near the Fed’s target over the long run, sustained acceleration could introduce renewed upside inflation risks.

Exhibit 10 – Truflation U.S. CPI vs M2 Money Supply Growth

Beyond M2, several other factors will shape the inflation outlook through Q2 and beyond:

• Tariff Policy: The recent Supreme Court ruling leaves most countries' existing tariffs at 10%. However domestic steel prices are on the rise again due to the tariffs on imports, combined with an expected increase in tariffs on the European auto sector. Finally, Jamieson Greer recently suggested that more tariffs are coming in the summer.

• Geopolitical Costs: Elevated oil and fertilizer prices remain key upside risks while disruptions persist.

• Fiscal Stimulus: Tax cuts and accelerated depreciation incentives continue to support economic demand.

• Housing Dynamics: The powerful disinflationary effect from housing appears to be fading.

• Immigration Policy: Reduced 2.5 million labor supply may increase wage pressures in labor-intensive industries.

• AI Investment Boom: Continued AI-related capital expenditures remain highly stimulative for the U.S. economy.

• Services Inflation: Wage-sensitive service categories remain sticky despite gradual moderation.

• Consumer Resilience: Strong retail spending and tax refunds continue to support demand.

The most likely path forward remains a volatile but gradually moderating inflation environment, with headline CPI remaining highly sensitive to energy prices.

Current inflation dynamics appear increasingly energy-driven rather than broad-based in the manner experienced during the pandemic. Rising fuel costs are feeding through into transportation, shipping, airline fares, and broader goods pricing, though second-round effects remain more contained than in prior inflation cycles.

Much will depend on the duration and severity of geopolitical disruptions, particularly in global energy markets and shipping routes. Forecast uncertainty, therefore, remains elevated.

Truflation Base Case Forecast for the BLS CPI

• May 2026: 3.2%–3.4%

• June 2026: Gradual cooling

• End of Q2 2026: 2.9%–3.0%

If energy prices normalize faster than expected, inflation could decline toward approximately 2.8% by the end of Q2. Looking further ahead, CPI is projected to moderate toward roughly 2.6% during Q3 before stabilizing around those levels into year-end.

Summary

The U.S. economy remains resilient, supported by strong consumer spending, AI-driven investment and continued fiscal stimulus. However, inflation pressures have reaccelerated in recent months, driven primarily by surging energy prices and renewed supply-side disruptions tied to geopolitical tensions.

While labor market conditions show tentative signs of improvement, underlying concerns remain evident and slower wage growth. At the same time, elevated public debt and persistent fiscal deficits continue to narrow the margin for policy flexibility.

Looking ahead, inflation is likely to remain elevated and volatile in the near term, particularly as higher energy costs continue to feed through into transportation, goods, and broader consumer prices. Nevertheless, as supply chains gradually normalize and labor market pressures continue to ease, inflation is expected to moderate over the second half of 2026.

For now, the economy appears to be transitioning toward a slower but still positive growth environment; one characterized by resilient demand, elevated uncertainty, and an increasingly energy-driven inflation dynamic.

About Truflation

Truflation is the real-time truth layer for macro markets. We provide investors with actionable, high-frequency trading signals built on transparent, independently verified economic data. Instead of waiting 30-60 days for government releases, our users get daily insights across 200+ indexes; inflation, housing, consumer categories, and more, all derived from real market prices, cross-checked across multiple sources and published for transparency. AI helps us process millions of data points so enterprises can access clean, audited, ready-to-use signals through our API.

Truflation has been leveraging this measurement tool to predict the BLS CPI number, with a 99.94% accuracy in predicting inflation in the last 12 months.

APPENDIX A

Truflation Category Percentage Change Data

Month over Month and Year over Year

All Data is based on April 2026 

TF 2026 - Inflation Report - US - M4 - Presentation.pptx

TF 2026 - Inflation Report - US - M4 - Presentation.pptx.pdf

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