The hottest inflation data in 3 years has derailed the record-setting rally in stocks

William Edwards Tue, May 12, 2026 at 6:55 PM UTC

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Stocks are falling after the April CPI report revealed a 3.8% rise in consumer prices.

Surging energy costs due to the US-Iran conflict has fueled inflation.

Investors are worried the Fed could be forced to hike rates to cool prices.

Stocks are selling off from record highs on Tuesday after a hot CPI report sent fears of another inflation flare-up rippling through the market.

Bureau of Labor Statistics data shows consumer prices jumped 3.8% year-over-year in April, the most since 2023. The bulk of the gains were driven by a jump in energy prices, which the BLS said are up by 17.9% since the same time last year. Gasoline prices in particular were up 28.4%. The rise stems from the ongoing US-Iran war, which has disrupted oil production and shipping flows.

Investors are worried that rising inflation could start to weigh on consumer spending, and possibly prompt the Federal Reserve to raise interest rates to cool demand. According to the CME Fedwatch Tool, odds of a rate hike by the end of 2026 rose from 19% on Monday to 31% on Tuesday.

Meanwhile, oil prices continued to march higher as the ceasefire in the Iran war looks fragile after Donald Trump remarked that it was on "life support" on Monday. Brent and US oil prices were both up about 3%, trading at $107.22 and $101.31 a barrel, respectively.

After hitting fresh all-time highs on Monday, stocks tumbled in Tuesday's session as investors digested the repot.

Here's where major indexes stood around 1:25 p.m. ET:

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S&P 500: 7,367.22, down 0.62%

Dow Jones Industrial Average: 49,715.15, up 0.02% (+10.68 points)

Nasdaq 100: 28,803.97, down 1.76%

After rising only slightly earlier in the day, bond yields were firmly higher after noon ET. The 10-year Treasury yield rose about four basis points to 4.45%.

Despite investors' fears, some Wall Street pros still seem to think the Fed will refrain from raising interest rates in the near future. That's because the rise in inflation is not demand-driven but a result of spiking oil prices.

"Hikes still feel a ways away," said Stephen Juneau, an economist at Bank of America, in a client note on Tuesday.

Still, core CPI — which excludes volatile food and energy prices — has started to creep up, rising 2.8% year-over-year in April, up from 2.6% in March, suggesting that rising energy costs could be bleeding into other areas of the economy.

"The pass through from headline inflation to the core reading is starting to show up," Art Hogan, the chief market strategist at B. Riley Wealth, said following the inflation report.

on Business Insider

Original Article on Source

Source: “AOL Money”