Inflation reading Tuesday expected to show prices at nearly a three-year high

An inflation reading due Tuesday is expected to show price gains at their highest level in nearly three years, setting up potential challenges for investors and Federal Reserve officials alike. April's consumer price index , a broad gauge of goods and services costs across the U.S. economy, is forecast to reach an annual rate of 3.8%, owing to a 0.6% jump in monthly prices as the oil shock continues to slam consumers, according to the Dow Jones consensus among economists. If that's the case, it will put headline inflation at its highest since May 2023, just as prices were beginning to cool from a similar energy jolt caused by Russia's invasion of Ukraine. The report "may do more than confirm another uncomfortable inflation print," wrote Jordi Visser, head of AI macro nexus research for 22V. The trend from "the last two months will look a lot more like 2022 than the disinflation story markets have been telling themselves." Indeed, concerns have been rising that financial markets are choosing to look through the current spike as a temporary event caused by the Iran hostilities . Derivatives contracts that hedge against inflation risk are around their highest since October 2025 but still relatively tame, and futures traders expect Fed officials largely to sit on their hands until the inflation storm passes. Expectation risk A hot, or even consensus, CPI report might change expectations. Inflation had been slowly ticking back down to the Fed's 2% target. …