April Inflation Surges as PPI and CPI Reinforce Higher-for-Longer Rate Outlook

This week’s economic data includes: (1) existing home sales for April, (2) Consumer Price Index (CPI) for April, (3) Producer Price Index (PPI) for April, (4) real earnings for April, (5) retail sales for April, (6) weekly initial jobless and continuing claims, and (7) market trends across equities, oil and Treasury markets along with rate-cut expectations.

 

KEY SUMMARY:

Home sales stabilized only slightly in April, as modest gains were offset by rising prices and persistent affordability challenges, elevated mortgage rates, and constrained supply, keeping the housing market sluggish.

Existing home sales showed only modest improvement in April, edging up 0.2% to an annualized pace of 4.02 million—slightly below expectations and still near recent lows. The data highlights a sluggish spring housing season, as elevated mortgage rates and ongoing affordability pressures continue to weigh on demand. While activity stabilized after March’s decline, regional performance remained mixed, with gains in the Midwest and South offset by weakness in the West. At the same time, home prices continued to rise, reaching a record level for April and marking the 34th consecutive month of year-over-year increases, reflecting still-limited supply conditions.

Inventory improved modestly, with listings rising month-over-month and pushing supply to 4.4 months, but levels remain well below pre-pandemic norms. Buyer activity reflects a cautious market—first-time buyers remain below healthy levels, investor activity has moderated, and homes are taking longer to sell compared to last year. With mortgage rates holding above 6% and inflation pressures persisting amid geopolitical tensions, the housing market remains constrained, with both buyers and sellers staying on the sidelines and limiting a more meaningful recovery.

April CPI showed inflation remains elevated, with headline and core measures accelerating on a year-over-year basis, driven primarily by energy, shelter, and food, while underlying pressures—supported by service inflation, technology-related price strength, and spillover from energy costs—suggest a prolonged period of elevated inflation and a continued cautious stance from the Federal Reserve.

Consumer prices rose 0.6% in April, down from 0.9% in March and in line with expectations, but still elevated.  Year-over-year CPI accelerating to 3.8%—the highest since mid-2023. The increase was primarily driven by shelter, gasoline, and grocery prices, which together accounted for the majority of the monthly gain, while inflation pressures became more broadly distributed across categories.

Food prices rebounded, led by increases in meats, produce, and dairy, with notable spikes in tomatoes and beef due to supply constraints, tariffs, weather disruptions, and elevated input costs. Energy prices remained a key driver, rising 3.8% on higher gasoline and fuel oil prices, although the pace moderated from March. Core goods prices were flat, suggesting tariff impacts are easing, but technology-related categories continued to see upward pressure, supported by supply constraints and AI-driven demand.

Core services inflation accelerated, led by a temporary surge in shelter costs due to a one-time catch-up in rent data, while some discretionary services showed early signs of softening. Core CPI rose 0.4% month over month and 2.8% year over year, both above expectations. Overall, inflation remains elevated, with energy-related pressures increasingly feeding into broader categories, reinforcing the likelihood of a cautious Federal Reserve approach and a gradual path toward moderation.

Wholesale prices surged far above expectations in April, driven by energy, rising trade margins, and transportation costs, signaling that inflation pressures are broadening and likely to continue flowing through to consumer prices.

April PPI came in significantly hotter than expected, with prices surging 1.4% month over month—the strongest increase since early 2022—driven by both services and goods. On a year-over-year basis, producer prices jumped 6.0%, highlighting a clear reacceleration in upstream inflation pressures and signaling renewed cost pressures building across the economy.

Energy remained a major driver, with gasoline prices surging 15.6% and lifting overall goods prices, while core goods also accelerated, suggesting inflation is broadening beyond energy into industrial inputs like chemicals and metals. On the services side, strong gains were fueled by rising trade margins and a sharp increase in transportation and logistics costs, reflecting businesses increasingly passing higher input costs through to customers.

Underlying inflation measures reinforced the trend, with both core and super core PPI rising sharply, pointing to more widespread pricing pressure. Combined with strong increases in intermediate demand, the data suggests that upstream cost pressures are building and could continue flowing through to consumer prices in the months ahead, reinforcing a higher-for-longer inflation environment.

Real earnings declined again in April as inflation continued to outpace wage growth, further eroding household purchasing power despite steady nominal income gains.

Real earnings declined again in April, as inflation continued to outpace wage growth, eroding purchasing power despite modest gains in nominal wages. While the pace of decline slowed compared to March, both real hourly and weekly earnings remained under pressure on a monthly and annual basis. This ongoing squeeze on real incomes highlights the strain elevated inflation is placing on households and raises concerns that weakening purchasing power could begin to weigh on consumer spending and overall economic momentum in the months ahead.

Retail sales remained resilient in April, but the gains were narrow and increasingly driven by essentials and e-commerce, signaling a more cautious consumer as growth begins to slow.

Retail sales rose a solid 0.5% in April, extending gains for a third straight month and underscoring continued resilience in consumer spending, supported by tax refunds and strong equity markets. However, the pace slowed from March, signaling a shift toward more normalized spending as inflation pressures, declining real wages, and lower savings begin to weigh on consumer behavior.

Beneath the surface, growth was highly concentrated in gasoline and e-commerce, while discretionary categories such as autos, apparel, and furniture showed clear weakness. Core spending remained steady and exceeded expectations, but the uneven composition points to a more cautious consumer—spending remains resilient overall, yet increasingly narrow and tilted toward necessities and services as the quarter progresses.

Weekly jobless claims rose modestly but remain low overall, signaling a labor market that is still resilient and stable despite growing inflation pressures.

Weekly initial jobless claims rose modestly to 211,000 but remained well below year-ago levels, while the four-week average edged higher, signaling that layoffs are still limited despite rising inflation pressures. At the same time, continuing claims increased to 1.78 million, but a decline in the four-week average and a steady 1.2% unemployment rate point to a labor market that remains stable and resilient overall.

Markets were volatile as rising oil prices and hotter inflation data drove a sharp jump in Treasury yields and reinforced a higher-for-longer rate outlook, with markets now fully pricing in at least one rate hike in 2027, overshadowing otherwise resilient equity performance.

Equity markets ended a volatile week with mixed performance, bringing a pause to a historic rally. A sharp Friday sell-off, driven by pressure on rate-sensitive sectors and renewed concerns over energy-driven inflation, weighed on sentiment. This came amid rising oil prices and stronger-than-expected CPI and PPI data, although solid earnings and continued AI-driven momentum helped limit broader downside. Major indices were largely flat for the week, while still maintaining solid year-to-date gains.

Energy markets were a key driver of macro uncertainty, with crude oil prices surging due to the ongoing closure of the Strait of Hormuz and stalled geopolitical negotiations with Iran. While futures markets still point to lower prices longer term, forward curves shifted higher, suggesting expectations for a more prolonged conflict. Gasoline prices remained elevated nationwide and in California, reinforcing inflation concerns and putting pressure on consumers.

The rate environment also shifted meaningfully, with Treasury yields rising sharply and reaching multi-month to multi-year highs by week’s end. The move was fueled by persistent inflation concerns, geopolitical risks, and global bond market selloffs. As a result, market expectations turned more hawkish, with investors increasingly pricing in a rate hike in early 2027 and reinforcing a higher-for-longer rate outlook.

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DETAILED ANALYSIS:

Existing Home Sales – April Update: 

Overview

According to the National Association of Realtors, existing home sales edged up 0.2% in April to a seasonally adjusted annual rate of 4.02 million units, slightly below market expectations of 4.05 million and up from 4.01 million in March. While the modest increase marks a stabilization from March’s decline, sales remain near recent lows, highlighting a sluggish start to the spring selling season amid elevated mortgage rates and affordability constraints.

Regional Monthly Breakdown (MoM)

• Northeast: 0.0% to an annual rate of 450,000 units
• Midwest: +2.2% to an annual rate of 950,000 units
• South: +0.5% to an annual rate of 1.87 million units
• West: −2.6% to an annual rate of 750,000 units

Regional Year-over-Year Growth

• National: 0.0%
• Northeast: -8.2%
• Midwest: -1.0%
• South: +2.7%
• West: 0.0%

Single-Family and Condo/Co-Ops Sales

• Single-family homes: unchanged MoM at a seasonally adjusted annual rate of 3.64 million (−0.3% YoY); median price $422,300, up 1.0% YoY
• Condominiums and co-ops: +2.7% MoM to a seasonally adjusted annual rate of 380,000 (+2.7% YoY); median price $374,100, up 1.1% YoY

Home Prices 

Nationally, the median existing home price rose 0.9% year over year to $417,700, marking the 34th consecutive month of annual price gains and a record high for the month, supported by still-limited supply.

Regional median prices diverged:

• Northeast: $510,800, up 4.8% YoY
• Midwest: $324,500, up 3.6% YoY
• South: $366,600, up 0.4% YoY
• West: $619,600, down 1.4% YoY

Inventory and Supply

• Unsold inventory increased 5.8% MoM to 1.47 million units
• Inventory is up 1.4% YoY but remains below pre-pandemic levels
• Months’ supply of inventory (MSI): 4.4 months, up from 4.2 months in March and 4.3 months a year ago

Buyer Composition and Market Dynamics

• First-time buyers: 33% of sales (up from 32% last month; slightly below 34% a year ago)
• All-cash sales: 25% of transactions (down from 27% last month; unchanged year over year)
• Investor purchases: 16% of transactions (down from 18% last month; up from 15% one year ago)
• Distressed sales: 2% (unchanged)
• Median time on market: 32 days (down from 41 days last month; up from 29 days one year ago)

Mortgage Rates and Outlook

• Freddie Mac reported the average 30-year fixed mortgage rate at 6.33% in April, up from 6.18% in March and down from 6.73% a year ago
• Weekly average ending May 7, 2026: 6.37%

Commentary

Despite modest stabilization in sales, the housing market remains constrained by elevated mortgage rates, ongoing affordability challenges, and rising inflation pressures that are squeezing household budgets amid geopolitical tensions tied to the Iran conflict. While year-over-year growth in median home prices has slowed, prices still reached a record level for the month of April. Supply remains below pre-pandemic levels at 1.83 million, and as a result, homes are staying on the market longer compared to a year ago. First-time buyers continue to account for less than 40% of purchases, well below the level needed for a healthy housing market. At the same time, many homeowners remain locked into low mortgage rates, limiting both selling activity and overall inventory.

CPI – April Update: 

The Bureau of Labor Statistics (BLS) reported that consumer prices increased 0.6% month over month in April, following a 0.9% increase in March and in line with market expectations. While inflation remains elevated, the pace moderated from March’s sharp spike. The April increase was largely driven by higher energy, shelter, and food prices, although gains were more broad-based.

Key contributors to the monthly increase were:

• Shelter: 33.4%
• Gasoline: 30.3%
• Groceries: 8.8%

On a year-over-year basis, CPI rose 3.8%, up from 3.3% in March, marking the highest level since May 2023 and exceeding market expectations of 3.7%.

Food Prices

Food prices increased 0.5% month over month in April, following no change in March. Grocery store prices rose 0.7%, with five of the six major food categories posting increases. Notable gains were seen in meats, poultry, fish, and eggs (+1.3% MoM), including beef (+2.7%), while fruits and vegetables rose 1.8%, led by sharp increases in fresh vegetables (+3.9%), particularly tomatoes (+15.1%). Dairy products increased 0.8%, and cereals and bakery products rose modestly at 0.1%.

Egg prices increased 1.5% month over month but remain significantly lower year over year

(-39.2%). Coffee prices rose 2.0% month over month and 14.8% year over year, while tomato prices surged 39.7% year over year. The sharp increase in tomato prices reflects a combination of supply constraints and cost pressures, including a 17% tariff on Mexican imports—which account for a significant share of U.S. supply—severe weather in Mexico and Florida that damaged crops, and elevated transportation costs.

Beef prices increased 14.8% year over year, driven by tight cattle supplies following years of drought that forced herd liquidation, along with high feed costs and continued strong consumer demand.

Prices for food away from home rose 0.2% month over month in April, unchanged from March. On an annual basis, food inflation remained moderate, with grocery store prices up 2.9% year over year and food away from home prices up 3.6%.

Energy Prices

Energy prices increased 3.8% month over month in April, down from the sharp 10.9% surge in March. The increase was driven by a 5.4% rise in gasoline prices, along with gains in fuel oil (+5.8%) and electricity (+2.1%), while natural gas prices edged down slightly. On a year-over-year basis, energy prices rose approximately 17.9%, led by continued strength in gasoline and fuel oil.

Goods Prices (Excluding Food and Energy)

Core goods prices were unchanged in April, down from a 0.1% increase in March, indicating that tariff-related price pressures may be easing. While apparel prices increased 0.6%, several categories—including household furnishings and other discretionary goods—showed softness. Used vehicle prices remained subdued, and new vehicle price gains were modest.

Amid ongoing supply constraints, computer prices rose 0.9% month over month in April (+2.3% YoY), reflecting the continued impact of the memory-chip shortage. Prices for computer software and accessories increased sharply by 5.0% month over month and 13.9% year over year, highlighting persistent pricing pressure in technology-related categories.

Services Prices (Excluding Energy)

Core services prices rose 0.5% month over month in April, accelerating from 0.2% in March. Shelter costs, which account for roughly 31% of CPI, increased 0.6%, reflecting a temporary catch-up in rent measures. Rent of primary residence rose 0.55% and owners’ equivalent rent (OER) increased 0.53%, both above their typical monthly pace due to statistical adjustments following prior data disruptions.

The increase in shelter inflation was driven by a one-time “catch-up” effect tied to the BLS’ data collection process. Because rent and OER are measured on a rotating six-month survey cycle, some housing units were not surveyed during the government shutdown period in late 2025. As a result, rent inflation had been understated in prior months, and April reflects a resurveying of those units—leading to an outsized but temporary increase in reported shelter costs. This suggests underlying housing inflation remains more moderate than the headline April print implies.

Airline fares increased 2.8%, reflecting higher jet fuel costs, while hotel prices also moved higher. In contrast, several discretionary service categories declined, including car and truck rentals

(-3.7%), suggesting some early demand softening. Medical care services were flat.

Core CPI

Excluding food and energy, core CPI rose 0.4% month over month in April, up from 0.2% in March and above market expectations of 0.3%. On a year-over-year basis, core CPI increased 2.8%, up from 2.6% in March and slightly above expectations.

Overall, tariff-related inflation appears to be gradually fading, while AI-driven demand continues to support price increases in certain computer and technology-related goods. At the same time, the Iran conflict and energy markets continue to exert upward pressure on inflation.

Looking ahead, underlying price dynamics point to a sustained period of elevated inflation, as higher energy costs increasingly spill over into non-energy and non-transportation categories. This reinforces the view that the Federal Reserve is likely to maintain a cautious stance, with inflation pressures expected to ease only gradually as energy-related effects normalize.

PPI – April Update: 

The BLS reported that the Producer Price Index (PPI) for final demand surged 1.4% month over month in April, sharply exceeding market expectations of a 0.5% increase and accelerating from the 0.7% gain in March. This marks the strongest monthly increase since early 2022, signaling a renewed pickup in upstream inflation pressures.

The April increase was driven primarily by services, which accounted for approximately 57.6% of the total monthly gain, reflecting strong margin expansion and higher transportation-related costs. Goods prices also rose meaningfully, contributing 37.5% of the increase, with energy accounting for roughly 28.0% of the overall move.

On a year-over-year basis, headline PPI rose 6.0%, well above market expectations of 4.8% and up from 4.0% in March, marking the highest 12-month increase since late 2022 and underscoring intensifying inflation pressures at the wholesale level.

Goods Prices

Goods prices, including food and energy, increased 2.0% month over month in April, following a 1.9% increase in March.

The increase was driven primarily by energy prices, which rose 7.8% in April, accounting for the majority of the gain in goods. Gasoline prices increased 15.6% month over month, contributing more than 40% of the overall increase in goods prices. Diesel fuel, jet fuel, and other refined petroleum products also posted strong gains, reflecting continued volatility in energy markets.

Food prices rose modestly by 0.2% month over month in April, reversing the decline in March, though food contributed minimally to the overall increase in goods prices. Within food, there were notable shifts beneath the surface: prices for fresh and dry vegetables surged 13.5% month over month, while egg prices declined sharply by 49%, and beef prices also edged lower by 3.5%, highlighting significant category-level volatility.

Excluding food and energy, core goods prices increased 0.7% month over month, accelerating from 0.3% in March, suggesting that inflation pressures are beginning to broaden beyond energy-related categories into industrial inputs such as chemicals and metals.

Prices for manufactured goods tied to data center buildouts showed mixed but notable movements. Electronic components and accessories increased significantly by 8.1% month over month in April (27.6% year over year), indicating continued strong demand and pricing pressure in semiconductor and component supply chains. In contrast, electronic computers and computer equipment rose more modestly by 0.6% month over month (8.1% year over year), suggesting more stable pricing dynamics at the finished equipment level.

Services Prices 

Service prices increased 1.2% month over month in April, marking the strongest monthly gain since early 2022 and a sharp acceleration from March.

Trade services (which measure changes in margins received by wholesalers and retailers) increased 2.7% month over month and were primarily driven by a 3.5% increase in margins for machinery and equipment wholesaling, along with additional gains in chemical and allied products wholesaling, health, beauty, and optical goods retailing, and fuels and lubricants retailing. This broad-based increase in margins suggests that businesses are increasingly passing through rising costs.

Transportation and warehousing services increased 5.0%, contributing materially to overall PPI growth, driven by higher truck freight and logistics costs tied to elevated fuel prices.

Services excluding trade, transportation, and warehousing increased just 0.1%, indicating that underlying inflation pressures across broader service categories remain relatively subdued.

Overall, services inflation reaccelerated meaningfully in April, with upward pressure concentrated in trade margins and transportation-related categories.

Core and Super Core PPI

Underlying inflation measures showed a clear reacceleration in April. Core PPI (excluding food and energy) increased 1.0% month over month, up sharply from 0.2% in March and well above expectations. On a year-over-year basis, core PPI rose to 5.2%, accelerating from 4.0% in March and exceeding market expectations of 4.3%.

The super core PPI (excluding food, energy, and trade services) increased 0.6% month over month, with the year-over-year measure rising to 4.4%, indicating broadening inflation pressures beyond energy and trade margins.

Overall, April PPI data came in significantly hotter than expected across headline, core, and super core measures. While energy prices remain a key driver, the rebound in trade margins and acceleration in transportation costs suggest inflation is becoming more broad-based. Additionally, continued strength in intermediate demand prices, which increased 5.6% in the past two months – the largest gain in five years – points to persistent upstream cost pressures that could continue to flow through to consumer prices in the months ahead.

Real Earnings – April Update:

The BLS reported that real earnings—wages adjusted for inflation—declined again in April, though at a more moderate pace than in March. Real average hourly earnings fell 0.5% month over month, following a 0.6% decline in March. The decrease reflected a 0.2% increase in nominal hourly earnings that was more than offset by a 0.6% increase in CPI.

Real average weekly earnings declined 0.2% month over month, an improvement from the 0.9% decline in March. This reflected the drop in real hourly earnings, partially offset by a 0.3% increase in average weekly hours worked.

On a year-over-year basis, real average hourly earnings declined 0.3% in April, down from a slight increase in March, reflecting a 3.6% increase in nominal wages alongside a 3.8% rise in consumer prices. With average weekly hours essentially unchanged from a year ago, real average weekly earnings declined 0.2% year over year.

The continued erosion in real wage growth, despite steady nominal wage gains, highlights the ongoing pressure from elevated inflation on household purchasing power and could weigh on consumer spending and economic momentum in the months ahead.

Retail Sales – April Update:

Overview:

Retail sales increased 0.5% month over month in April, slowing from March’s downwardly revised 1.6% gain but in line with market expectations. On a year-over-year basis, sales rose 4.9%, reflecting continued resilience in consumer spending.

Retail sales have now advanced for a third consecutive month, supported by higher-than-usual tax refunds and a stock market rally, which helped offset rising inflationary pressures. However, the sustainability of this momentum is uncertain, as inflation-adjusted wages continue to decline, the impact of tax refunds begins to fade, and household savings have trended lower.

It is also important to note that retail sales are not adjusted for inflation, meaning part of the increase may reflect higher prices rather than stronger underlying sales volumes. Overall, the April report suggests spending is beginning to normalize following a strong first quarter, with early signs of more cautious consumer behavior emerging.

Category Performance:

Performance was broadly positive, with 9 of the 13 major retail categories posting monthly increases, though gains were highly concentrated in a few key segments.

• Gasoline stations: +2.8% month over month, contributing approximately 45% of the total increase
• Non-store retailers: +1.1%, contributing roughly 42% and remaining a key driver with strong 11.1% year-over-year growth
• Food & beverage stores: +0.8%, contributing ~18%
• Food services & drinking places: +0.6%, contributing ~17%, and as the only services-sector category, indicating continued solid demand for dining out

These gains were partially offset by weakness in discretionary and rate-sensitive categories:

• Motor vehicle & parts dealers: -0.4%, reducing overall growth by ~16%
• Clothing & accessories: -1.5%, weighing on growth by ~11%
• Furniture & home furnishings: -2.0%, contributing additional drag

Secondary categories—including electronics, general merchandise, and building materials—provided only modest incremental support.

The April gain was heavily concentrated, with gasoline (~45%) and e-commerce (~42%) alone accounting for roughly 85% of the total increase, while autos and apparel meaningfully offset growth—highlighting the narrow and uneven nature of current consumer spending trends.

Core Retails & Control Group:

Core retail measures remained relatively firm despite the slower headline pace:

• Retail sales excluding autos increased 0.7% month over month, in line with expectations
• Retail sales excluding autos and gasoline rose 0.5%, exceeding expectations of 0.3%

These measures indicate that underlying consumer demand remained resilient, even after adjusting for volatility in autos and gasoline.

The control group—which excludes food services, autos, building materials, and gasoline and feeds directly into GDP—rose 0.5% in April, exceeding market expectations of 0.4%.

This follows a strong 0.8% increase in March, indicating that while momentum cooled from the prior month’s surge, core consumer spending remains on solid footing. The above-expectation gain in April continues to point to a steady, though moderating, contribution to second-quarter GDP growth.

Commentary

April retail sales reflect a clear moderation from March’s outsized gain but not a deterioration in underlying consumer fundamentals. The data point to a transition from energy- and timing-related spending boosts toward a more normalized pace of consumption.

Core spending remained steady and exceeded expectations, reinforcing that underlying demand continues to hold up. However, softness across discretionary categories—particularly autos, furniture, and apparel—suggests that higher prices and lingering cost pressures may be starting to weigh on more flexible household spending.

Overall, the April composition highlights a shift toward necessity-driven and services-oriented spending, while discretionary goods segments showed clearer signs of softening—leaving consumer activity resilient but increasingly narrow and uneven as growth slows into the second quarter.

Weekly Jobless Claims – Week Ending May 9:

The Labor Department reported that initial jobless claims increased by 12,000 to 211,000 for the week ending May 9, up from a revised 199,000 the prior week and above market expectations of 205,000. Initial claims have now remained meaningfully below year‑ago levels for the thirteenth consecutive week, while the four‑week moving average increased slightly by 750 to 203,750, indicating that layoffs remain limited despite rising inflation tied to the Iran war.

Continuing claims, which track the number of individuals receiving unemployment benefits, increased by 24,000 to 1.782 million for the week ending May 2, up from a revised 1.758 million and slightly above expectations of 1.78 million. The insured unemployment rate remained unchanged at 1.2%, while the four‑week moving average for continuing claims fell by 6,750 to 1.781 million, indicating a stable labor market.

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WEEKLY MARKET ANALYSIS:

Equity Market

Equity markets experienced a volatile week, with modest gains and declines that ultimately ended a historic multi-week rally. The pullback was largely driven by a Friday sell-off, as rate-sensitive stocks came under pressure and concerns over energy-driven inflation resurfaced amid higher oil prices and stronger-than-expected consumer and producer inflation data—despite continued strength in earnings and AI-driven momentum.

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: -0.08% (weekly) & +12.84% (YTD), closing at 26,225
• S&P 500: +0.13% (weekly) & +8.22% (YTD), ending at 7,409
• Dow Jones Industrial Average: -0.17% (weekly) & +3.04% (YTD), closing at 49,526
• Russell 2000: -2.37% (weekly) & +12.55% (YTD), ending at 2,793

Oil Market and Gasoline Price

For the week ending May 15, 2026, crude oil prices surged, primarily driven by the continued closure of the Strait of Hormuz, stalled negotiations with Iran, and the lack of a concrete agreement to reopen the strait following the U.S.–China summit with President Xi. Brent crude increased by $7.97, or 7.87%, rising from $101.29 to $109.26 per barrel, while West Texas Intermediate (WTI) climbed $10.00, or 10.48%, from $95.42 to $105.42 per barrel.

Based on December 2026 futures contracts, Brent is currently priced at $90.98 per barrel, down $18.28, or 16.73%, from the May 15 settlement, while WTI is priced at $83.42 per barrel, down $22.00, or 20.87%. December 2027 futures indicate further declines, with Brent at $79.27 and WTI at $74.08 per barrel. While forward prices suggest the market expects oil prices to ease as the Iran conflict eventually resolves, both 2026 and 2027 year-end prices moved higher week-over-week, reflecting expectations that the conflict may persist longer than previously anticipated.

U.S. average gasoline prices, as tracked by AAA, remained largely unchanged at $4.53 per gallon. Since the onset of the Middle East conflict in late February 2026, gasoline prices have risen by $1.54 per gallon, or 51.7%, from $2.98.

According to the Department of Energy’s weekly update for the week ending May 11, the average price of regular gasoline in California increased slightly by $0.01, or 0.17%, from $5.959 to $5.969 per gallon. California prices remain $1.49, or 33.4%, above pre-conflict levels of $4.475 per gallon.

Treasury Market

Treasury yields gradually increased through Thursday, driven by stronger-than-expected inflation data, before surging on Friday to multi-month and multi-year highs. The sharp move was fueled by concerns that a prolonged Iran conflict could further exacerbate inflation, along with spillover effects from significant selloffs in Japanese and U.K. government bonds.

The 10-year Treasury yield rose to 4.59%, its highest level since February 2025 and the largest one-day increase in over a year, while the 30-year yield climbed to 5.12%, marking its highest closing level since July 2007.

Key Treasury Yield Movements:

• 2-year yield: 4.09% (+0.19%)
• 5-year yield: 4.26% (+0.24%)
• 10-year yield: 4.59% (+0.21%)

Rate Cut Expectations

Unlike the prior week, investors are now fully pricing in a 0.25% rate hike as early as January 2027, with roughly a 50/50 chance of a rate cut in December 2026. This shift is being driven by persistent inflation tied to the prolonged Iran conflict, a resilient labor market, and hawkish dissents from the latest Federal Reserve meeting.

Markets are now assigning an 80% probability of a rate hike in January 2027 and nearly 100% by March 2027. An additional rate hike is also being priced in beyond March, though with a lower probability of around 30%, reinforcing a higher-for-longer rate environment.

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NEXT WEEK’S ECONOMIC CALENDAR:

Key scheduled releases include:

• 5/19 (Tuesday)
  • Pending Home Sales for April
  • ADP Weekly Employment Change
• 5/20 (Wednesday)
  • FOMC Meeting Minutes
• 5/21 (Thursday)
  • Housing Starts for April
  • Building Permits for April
  • Weekly Jobless Claims and Continuing Claims

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For a visual representation of this week’s economic review, you can view or download the slide deck here: 05.18.2026 CBC Weekly Economic Update Slides

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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