Coming off a jobs report last Friday that showed pockets of weakness in the labor market, the April Consumer Price Index (CPI) reading came in hot, stoking inflation concerns and hitting consumers with a double whammy.

If consumers feel squeezed in the labor market and consumer prices are rising, that spells trouble for the economy, which has defied all odds since the pandemic.

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Will this recent data force the Federal Reserve to rethink its position regarding interest rates?

A bad combination

As many saw last Friday, the U.S. economy added 115,000 jobs to nonfarm payrolls in April, more than double the 55,000 estimate. The unemployment rate held steady at 4.3%.

On the surface, this is all good news. But looking deeper within the report, there are some concerning trends. For instance, 37,000 new jobs were added in healthcare, while another 17,000 were added in social assistance.

Economists do not view job additions in these categories to be representative of economic growth. They can also have a high churn rate and be overly reliant on government funding.

Furthermore, information services jobs continue to bleed due to disruption from artificial intelligence. The sector lost another 13,000 jobs in April, bringing total job losses to 11% since November 2022.

Perhaps even more concerning, average hourly earnings increased by 0.2% in April, 0.1% below economists' expectations. So, the job gains weren't as good as they looked on paper, and earnings came down.

Then you factor in a hot CPI report this morning, May 12, and consumers are getting hit with a double whammy.

The CPI increased by 0.6% on a seasonally adjusted basis in April, in line with economists' estimates. However, the year-over-year rate of 3.8%, or the headline number, was 0.1% higher than economists' estimates.

The CPI has accelerated in recent months due to the Iran war, which has sharply increased gas prices, which can impact the entire economy. Core inflation, which strips out more volatile food and energy prices, rose 0.4% for the month, slightly higher than expected, and came in 2.8% higher year over year.

The core inflation number is probably most important right now, given how volatile energy and gas prices are these days. Still, it's worth noting that, even though energy prices are not included in the core number, they can have a broad impact on the economy, and it will only get worse if the conflict in Iran persists.