Hottest Inflation Report In 3 Years Has One Big Problem

In this episode of Prof G Markets, host Ed Elson dissects April's inflation surge—the hottest in three years at 3.8% year-over-year—largely driven by energy costs from the ongoing Iran war, alongside a booming semiconductor rally fueled by AI demand. Economist Justin Wolfers explains the data's nuances and risks, while analyst Stacey Razgon details chip stocks' gains. A closing note questions AI adoption metrics amid reports of contrived usage at Amazon and Meta.

Inflation Breakdown: Headline vs. Core

April's headline inflation hit 3.8% year-over-year, the highest since 2021, with energy prices accounting for 40% of the month-to-month rise and up 18% annually. This reflects a real cost-of-living squeeze: wages are no longer keeping pace, leading to falling real wages and an affordability crisis. Core inflation, excluding volatile food and energy, rose to 2.8%—elevated but not alarming yet. Wolfers stresses the distinction: headline captures everyday pressures like $4/gallon gas, while core gauges underlying momentum and psychology, stripping out one-off shocks like Middle East strife or droughts. The key watchpoint is whether energy spikes spill over, embedding higher expectations after years above the Fed's 2% target.