A customer shops for produce at a HEB grocery store on May 11, 2026 in Austin, Texas.
Brandon Bell | Getty Images
Prices rose in April at the fastest pace since May 2023. Traders on prediction market platforms believe the peak of inflation is yet to come.
The headline annual inflation rate rose 3.8% last month, but Kalsi traders believe it is almost certain that price growth will exceed 4% in 2026, with an almost two-thirds chance of it rising above 4.5%.
Traders also see an almost 40% chance that inflation will rise above 5% this year. Nothing like that has happened since February 2023.
This is significantly higher than Wall Street forecasts. Inflation is expected to peak at an average of 3.8% this quarter and fall to 2.8% by year-end, according to a survey of economists polled by FactSet.
However, household budgets are more in line with market forecasts. Consumers expect inflation to be 4.5% over the next year, according to a University of Michigan survey released Friday. At Polymarket, traders believe there is a 50% chance that U.S. inflation will exceed 4.5% in 2026.
Headline inflation soared last month due to soaring energy prices due to the Iran war and the closure of the Strait of Hormuz. However, core inflation, which measures price changes excluding food and energy, also rose by 0.4% in April, up 2.8% from a year earlier.
food, materials, housing, housing
“First-order effects of the Middle East conflict” [has] shocked oil prices [has] “The amount consumers are paying at the pump will be reflected immediately, but the next frontier to look at is rising input prices for food and raw materials,” said Skyler Weinand, chief investment officer at Regan Capital.
The conflict between the United States and Iran has caused energy prices to soar, but not all of the inflation can be easily explained by the war. Notably, shelter prices rose by 0.6% in April.
Travel costs have also increased. Airfares rose 2.8% in the month, and non-home accommodation rose 2.4% as higher jet fuel prices were passed on to consumers by airlines. Apparel prices rose 0.6%, but it was a smaller increase than in March.
However, it is energy shocks that are causing headline inflation. As long as the strait, through which 20% of the world’s crude oil flowed before the war, remains closed, consumers are unlikely to see any immediate relief. US crude oil prices rose above $100 a barrel again on Tuesday.
Vessels in the Strait of Hormuz, Musandam, Oman, May 8, 2026.
Stringer | Reuters
Most traders in Karshi do not expect maritime traffic in the strait to return to normal until October.
The longer the strait remains closed, the greater the risk to prices. Perhaps as a result, Kalsi traders now see a more than 50% chance that the Federal Reserve will raise rates by July 2027.
“The oil supply shock in the turbulent first quarter was primarily due to higher prices,” Seth Carpenter, chief global economist at Morgan Stanley, said in a note Monday. “A turbulent second quarter with continued price increases will start to weaken the ‘temporary’ nature of the shock…and central banks will need to pivot from slow changes in policy stance.”
—CNBC’s Liz Napolitano contributed reporting
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
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