Underlying consumer prices climbed by slightly more than expected in the United States last month, reinforcing the case for a tightening bias from the Federal Reserve, and putting modest upward pressure on the dollar. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index—with highly-volatile food and energy prices excluded—climbed 0.4% month-over-month, rising from the 0.2% pace set a month earlier, and was up 2.8% year-over-year. This topped consensus estimates among economists polled by the major data providers ahead of the release, which were set closer to the 2.7% mark. Headline prices rose 0.6% in April from the prior month, decelerating slightly from the prior 0.9% increase, and rising 3.8% over the same period last year.

Driven by the conflict in the Middle East, rising gasoline prices contributed almost 40% of the month-over-month headline increase as energy prices jumped another 3.8%. Food prices rose 0.5%, rebounding from a flat print in the prior month. A remeasurement in shelter prices—largely related to last year’s government shutdown—saw overall service cost inflation accelerate to 0.6% from 0.2% previously. The “supercore” measure often highlighted by outgoing Fed chair Jerome Powell, which captures services inflation excluding food, energy and housing, jumped 0.454% in April after a 0.179% increase in March.

After an initial wobble, Treasury yields are inching higher on the policy-sensitive front end of the curve, equity futures are slipping, and the dollar is advancing against its major rivals as market participants incrementally raise the likelihood of a rate hike from the Fed before year end. With labour markets displaying a surprising degree of resilience and headline inflation showing signs of remaining well above the central bank’s target for a prolonged period of time, futures traders are putting circa-21% odds on a hike by December, up from 18% ahead of the release—but this is being offset by an implied decline in real earnings that could ultimately take a toll on underlying growth. If economic theory prevails (it often doesn’t) higher energy prices could cannibalise spending in other areas of the economy and contribute to a wider slowdown.