NEW YORK, May 12 (Reuters) - U.S. consumer prices rose at a brisk clip for a second straight month in April, posting the largest annual increase in inflation in nearly three years and further bolstering expectations the Federal Reserve will keep interest rates unchanged for a while.

The Consumer Price Index increased 0.6% last month after surging 0.9% in March, the Labor Department's Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast the CPI rising 0.6%.

In the 12 months through April, the CPI advanced 3.8%. That was the biggest year-on-year increase since May 2023 and followed a 3.3% rise in March. Economists had forecast a rise of 3.7%.

Excluding food and energy, the CPI climbed 0.4% last month, partly lifted by a one-time adjustment to rent measures after last year's shutdown of the federal government prevented data collection in October.

MARKET REACTION:

STOCKS: U.S. stock index futures were down slightly, with the Nasdaq .IXIC headed for a 0.7% decline at the open and the S&P 500 .SPX indicated down 0.2%

BONDS: Treasury prices fell, sending yields higher. The 2-year Treasury yield US2YT=RR rose 3 basis points to 3.98%, while the 10-year Treasury yield US10YT=RR rose 3 basis points to 4.44%.

FOREX: The dollar index =USD rose 0.3% to 98.29.

COMMENTS:

TIM URBANOWICZ, CHIEF INVESTMENT STRATEGIST, INNOVATOR ETFS FROM GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:

“Inflation is likely to take a back seat over the coming months as investors remain focused on earnings, economic growth and the AI-driven capex cycle. The Fed has been clear that it is willing to look through any temporary inflation spike tied to the Iran conflict, and that remains the key consideration for investors in the near term. Markets had already priced out rate cuts for 2026 heading into the report, and nothing in the data suggests rate hikes are back on the table. As long as the 10-year Treasury yield remains contained below 4.5%, we do not see these levels as a meaningful headwind for equities.”

ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK:

"Energy prices exploded because of the whole situation in the Middle East. This is the first inflation report where we're seeing consumer prices directly being impacted... How long will oil prices stay high? Is it going to be sticky? Until we see oil prices come down, inflation is here to stay. That is a concern for the market and, more importantly, for the Fed."

GEORGE BROWN, SENIOR ECONOMIST AT SCHRODERS, LONDON:

"U.S. inflation is close to peaking, but that does not mean relief is imminent. With oil prices still unpredictable, the danger is that a temporary energy shock morphs into something more persistent.

"With rate cuts now unlikely in 2026, the policy debate has shifted to whether the Fed can afford to sit tight or is ultimately pushed into tightening. Fed Chair nominee Kevin Warsh may advocate looking through a one-off energy shock, but other parts of the Fed appear less relaxed about the risks."

DOUG BEATH, GLOBAL EQUITY STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE

"It's a little bit higher than the survey so far. It's very early. The bond market hasn't reacted too strongly. So we'll see how the day goes, but I do think it will be interesting. It is above expectations. We believe the financial markets and commodities have been a little slow to appreciate the economic damage that is building with higher prices, oil prices, raw materials, all those things that could accelerate global inflation.

"April had the highest S&P 500 returns since 2020. Obviously, earnings continue to exceed expectations, AI, all those things. But I do think this, even though it's a little bit higher than expected, it could be more important because of the fact the negotiations are still in limbo. We'll see how the rest of the day goes by. But I think this will be more important going forward. The focus on inflation will be an issue, particularly as these US-Iran negotiations continue and we don't have any finalization on this."