US inflation increased at its fastest pace in three years in April, driven by higher energy prices amid the war with Iran, and cementing economists’ views that the Federal Reserve could hold interest rates unchanged well into next year.

Surging price pressures are eroding household income and could restrain consumer spending and economic growth this quarter. Income at the disposal of households after adjusting for inflation dropped for a third straight month in April, other data showed on Thursday. Given the soaring cost of living, Americans are growing frustrated with Donald Trump’s handling of the economy. A Reuters/Ipsos survey last week showed the president’s approval rating fell to nearly its lowest level since he returned to the White House, hit by a drop in support among Republicans. Trump won the 2024 presidential election in large part because of his promise to lower inflation.

The government on Thursday also revised down the growth pace in consumer spending in the first quarter to 1.4% from the previously reported 1.6% annualized rate. Overall gross domestic product (GDP) growth was slashed to a 1.6% rate from the 2.0% pace estimated last month.

Inflation threatens his Republican party’s congressional majority in the November midterm elections.

“The inflation picture is becoming increasingly uncomfortable for the Fed,” said Olu Sonola, head of US economics at Fitch Ratings. “Price pressures are likely to persist over the next few months, and while the Fed cannot fix a supply shock, it cannot ignore one that is feeding into underlying inflation.“

The personal consumption expenditures price index jumped 3.8% in the 12 months through April, the largest rise since May 2023, the commerce department’s bureau of economic analysis said. PCE inflation advanced by an unrevised 3.5% in March.

Economists polled by Reuters had forecast PCE inflation increasing 3.8% year-on-year. The PCE price index rose 0.4% month-on-month in April after shooting up 0.7% in March.

The Middle East conflict has disrupted shipping in the strait of Hormuz, boosting energy prices, as well as straining global supply chains and causing shortages of a wide range of goods, including fertilizers, aluminum and consumer products. The national average retail gasoline price shot up 12.3% in April, data from the US Energy Information Administration showed.

Gasoline prices have increased more than 50% since the war started at the end of February. Away from the pain at the pump, consumers are also paying higher prices for other goods and services. Inflation was already elevated before the war, largely because of Trump’s sweeping import duties.

Goods prices increased 0.7% last month, with gasoline and other energy products rising 5.5%. Food prices rebounded 0.5%.

Excluding the volatile food and energy components, the PCE price index increased 3.3% year-on-year in April after rising 3.2% in March. The so-called core PCE inflation gained 0.2% in April on a monthly basis after advancing 0.3% in March. The US central bank tracks the PCE inflation measures for its 2% target. Financial markets expect the Fed will keep its benchmark overnight interest rate in the 3.50% to 3.75% range into 2027. Minutes of the Fed’s 28 April and 29 April meetings published last week showed a growing number of policymakers open to the possibility that they may need to hike rates.

Interest rate hikes are likely to come under intense scrutiny from the White House, which has continued to pressure the Fed to lower rates. Kevin Warsh, who was sworn in as Fed chair last week, previously indicated that he also believed the Fed should be lowering rates, but it is unclear whether he will be able to give Trump his rate cuts. Though Warsh has the bully pulpit of the Fed, he is one of 12 voting members who set rates.

During his swearing in ceremony last week, Warsh said that he aspires to lead a “reform-oriented Federal Reserve”.

“Inflation can be lower, growth stronger, real take-home pay higher, and America can be more prosperous, and no less important,” he said.

But rising prices continue to pose a threat to that vision. Services prices increased 0.3% in April for the third straight month. The cost of housing and utilities rose 0.6% while prices for transportation services climbed 0.4%. Food services and accommodations prices increased 0.5%. Surging prices are flattering the dollar amount of spending. Consumer spending, which accounts for more than two-thirds of economic activity, increased 0.5% last month after surging 1.0% in March. Hefty tax refunds have provided a cushion for consumers, especially lower-income households.

Consumers are also tapping into savings, with the saving rate dropping to 2.6% last month. That was the lowest level since June 2022 and was down from 3.2% in March. Income was unchanged. After adjusting for inflation, income at the disposal of households fell 0.5%.

With inflation outpacing wage gains and the tax filing season over, consumers are likely to pull back. Economists also expect that consumers will at some point want to start rebuilding their savings, especially in the face of uncertainty wrought by the war. When adjusted for inflation, consumer spending edged up 0.1% in April after increasing 0.3% in March.

Reuters contributed reporting