Top executives at U.S. firms now expect inflation to run at 3.7% over the next 12 months, up from 3.1% in the first-quarter survey, according to the Federal Reserve Bank of Cleveland's latest Survey of Firms' Inflation Expectations (SoFIE). The jump in business expectations arrives as April CPI data confirmed the highest headline inflation reading since May 2023, complicating the Federal Reserve's path forward.
April CPI: 3.8% Headline, Energy Drives the Surge
The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers rose 0.6% on a seasonally adjusted basis in April, with the year-over-year reading climbing to 3.8% from 3.3% in March. That print came in hotter than the 3.7% consensus forecast.
Energy costs were the dominant driver. The energy index jumped 17.9% over the past 12 months, the steepest annual increase since September 2022. Gasoline prices surged 28.4% year-over-year, up from 18.9% in March, while fuel oil leapt 54.3%. The pressure traces back to the supply shock from the ongoing war with Iran, which has kept Brent and WTI elevated through the spring.
Core CPI — which strips out food and energy — rose 0.4% on the month and 2.8% on the year. Shelter, still the largest component of core inflation, climbed 0.6% in April. Food prices added 0.5%, with food at home up 0.7% and food away from home up 0.2%.
Fed Holds at 3.5%-3.75% Amid "Unusual" Dissent
At the April 28-29 FOMC meeting, the Federal Reserve voted to hold the federal funds rate in a range of 3.5% to 3.75%. The post-meeting statement acknowledged that "inflation is elevated, in part reflecting the recent increase in global energy prices."
Coverage from CNBC described the committee as "unusually divided" as policymakers wrestle with the dual challenge of persistent inflation and a softening labor market. The minutes from the meeting reflect a Fed reluctant to either ease into a slowing economy or hike into an oil-driven price shock that may prove transitory.
Business Expectations Catch Up to the Data
The Cleveland Fed's SoFIE survey, which polls CEOs and other senior executives, recorded a 60-basis-point jump in the one-year CPI outlook between January and April — from 3.1% to 3.7%. That brings business expectations almost in line with the most recent realized print, suggesting firms are increasingly building elevated input costs into pricing decisions and planning horizons.
The New York Fed's separate Survey of Consumer Expectations also flagged that short-term inflation expectations increased further in its May release, while longer-term expectations remained stable — a pattern that mirrors the corporate view of energy-driven near-term pressure without a full de-anchoring of longer-run inflation psychology.
What to Watch
The next CPI report, covering May 2026, is scheduled for release on June 10, 2026, at 8:30 a.m. ET. Markets will be watching three things: whether the energy pass-through into core categories accelerates, whether shelter disinflation resumes, and whether the gap between business expectations and Fed projections continues to widen. With CEOs now penciling in 3.7% inflation and the Fed's 2% target still distant, the policy room for any near-term cuts has tightened considerably.
Sources: Bureau of Labor Statistics (Consumer Price Index Summary – 2026 M04 Results); Federal Reserve Bank of Cleveland (Survey of Firms' Inflation Expectations, Q2 2026); Federal Reserve (FOMC Minutes, April 28-29, 2026); Federal Reserve Bank of New York (Survey of Consumer Expectations, May 2026); CNBC (April 2026 CPI and Fed decision coverage).