US prices rose in April at their fastest rate since May 2023 as the impact of the war in Iran was increasingly felt by consumers.

A jump in the cost of gasoline and groceries pushed the consumer price index (CPI), which shows the rate at which prices rose over the past 12 months, to 3.8%.

It is the highest level since inflation hit 4% three years ago.

The Bureau of Labour Statistics (BLS) said almost half of the rise was driven by surging energy costs, while housing and food costs also contributed.

The US-Israel war in Iran, and the resulting effective closure of the key Strait of Hormuz shipping lane, has led to a jump in oil prices, and this has caused a surge in the price of gas in the US.

The national average price for a gallon of unleaded is at its highest level since July 2022, at $4.50 (£3.33), according to data from the AAA motoring group.

The rise in April's inflation figure, from 3.3% in March, makes it increasingly unlikely the Federal Reserve will cut interest rates this year.

Isaac Stell, investment manager at the Wealth Club, said the inflation increase even left possible interest rate hikes "firmly on the table".

It comes days before US President Donald Trump's appointee Kevin Warsh is set to take over from Jerome Powell as chair of the US central bank.

Stell said the incoming chair would enter the role with "little room for manoeuvre" and may be forced to take a more conservative approach.

Trump had clashed with Powell over his reluctance to cut the central bank's interest rate, which the president hoped would spur the US economy, and has made it clear he expects Warsh to push for cuts.

It also poses a challenge for Trump and the Republicans ahead of November's midterm elections, after Trump's 2024 re-election campaign focused largely on his plans to cut inflation.

Trump on Tuesday described the increase as "short-term" and said Americans would understand his priority, keeping Iran from developing a nuclear weapon.

He also said inflation was less than during his predecessor Joe Biden's term. The measure peaked at 9.1% under the Democratic president in June 2022.

AJ Bell's head of financial analysis, Danni Hewson, said: "Americans are supremely sensitive to the price of gasoline. They also elected Donald Trump on the promise that he would bring down prices.

"With the mid-terms hurtling towards us, the fact that the weekly shop is getting more expensive could once again be political kryptonite to the governing party, only this time that party has changed colour."

Air fares and clothing also increased in the year to April, while the price of new cars fell slightly.

The closure of the Strait of Hormuz has caused the price of jet fuel to spike, with US airlines, which do not currently hedge their fuel costs, quickly passing on increases to customers.

The average airfare rose by 20.7% in April, Tuesday's figures showed.

April's inflation figure also marked the first time in three years that Americans' pay packets have not been growing faster than prices are rising.

While prices rose by 3.8% for the year to April, average paychecks grew by just 3.6%.

US stock markets opened lower on the news, with the S&P 500 falling 0.6% and the Dow Jones Industrial Average down 0.7%.

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US inflation rises to 3.8% as energy costs increase due to Iran conflict

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