Investing.com -- Bank of America analysts are weighing whether the U.S. economy is experiencing stagflation or reflation as supply and demand shocks continue to impact economic conditions, according to a recent note.

The bank pointed to resilient consumer spending and strong corporate earnings as indicators of reflation. However, analysts noted that the fading fiscal tailwind means the real test of consumer and labor market strength may still lie ahead. For reflation and interest rate increases to become the base case scenario, the labor market would need to begin tightening, the note stated.

April inflation data exceeded expectations, with core Consumer Price Index rising 0.4% month-over-month. The increase was primarily driven by shelter inflation, which rose 0.6% month-over-month, while core services excluding housing jumped 0.5% month-over-month. Headline CPI reached 3.8% year-over-year, marking its highest level since May 2023. Higher energy and food prices contributed to the increase.

Bank of America estimates that core Personal Consumption Expenditures likely remained firm in April, increasing 0.28% month-over-month and 3.3% year-over-year.

Retail sales data for April showed the consumer sector remains resilient despite higher gasoline prices. The control group rose 0.5% month-over-month, while food services increased 0.6% month-over-month. Upward revisions to data from the previous two months raised Bank of America's tracking estimates for first quarter and second quarter consumer spending by 20 basis points and 10 basis points to 1.8% and 2.8%, respectively.

Bank of America aggregated card data through the week ending May 9 showed total card spending excluding gas was up 5.8% year-over-year.