Inflation picks up as labor market trends begin to diverge

Dave Harrison Smith, CFA
Chief Investment Officer
April 13, 2026

 

 

Headline inflation jumps but Core holds

On Friday, the Bureau of Labor Statistics released its March CPI report, among the first to reflect the impact of rising energy and gas prices following the strikes on Iran at the end of February.

At first glance, the report came in broadly in line with expectations or even slightly cooler than feared. Headline CPI jumped to 3.3% year-over-year, up from 2.4% the prior month. Core CPI, which excludes volatile food and energy prices, was slightly cooler than expected, aided by a decline in used-car prices.

Core and Headline CPI year-over-year change

 

The influence of the war in Iran was evident in the data, with energy prices increasing by 12.6% versus last year and gas prices rising by 21.2%. As expected, pass-through to core CPI was more limited, though signs of impact are beginning to emerge at the margin in the form of prices of delivery services and airfare, which rose 3.1% and 2.7% year over year, respectively.

The broad takeaway is that this report is unlikely to shift the Fed’s stance of holding interest rates at current levels. The pressure on consumers remains, with lower-income consumers particularly hard hit, given their higher share of gasoline spending. The longer the conflict extends, the greater the risk these costs transmit to slower spending growth and higher core inflation, as companies raise prices to offset higher input costs.

 

Labor market for early-career Americans showing weakness

Last week’s labor market data continued to indicate a stable yet cool job market. Beneath the surface, however, is an increasing divergence in prospects for early-career workers.

The Federal Reserve Bank of New York recently published new data dissecting unemployment trends for various cohorts of the U.S. labor force. Of particular note was the unemployment rate for new college grads, which has been steadily rising since 2022 and reached 5.6% at 2025 year-end. That level is significantly above historical average and elevated for non-recessionary periods.

Unemployment rate for recent college graduates, smoothed*

Concurrently, research from the Stanford Digital Economy Lab, published by Erik Brynjolfsson et al, examined the impact of artificial intelligence on labor. Their team focused on the growing divide between roles defined as more or less exposed to AI automation. Their findings point to a growing divergence in outcomes, specifically concentrated in early-career employees in AI-impacted roles.

Employment changes by age and level of exposure to AI, from Stanford Digital Economy Lab

For any of us with children, nieces, or nephews entering the workforce, these findings may come as no surprise. The job market is tough out there for this cohort of the American labor force. While the aggregate labor market looks relatively healthy, AI does appear to be impacting certain segments. The implications for our economy and society are worth monitoring closely.

 

 

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