There’s a new force that could push up inflation in the US once again: The Iran war.
Oil prices passed $100 a barrel on Sunday after the effective closure of the Strait of Hormuz cut off crude shipments from the Persian Gulf. While prices dropped to around $85 a barrel on Tuesday after President Donald Trump signaled that he thought the war could soon end, ongoing volatility across markets indicates that fears of inflation are still high.
Wall Street strategists have raised concerns about the impact on the broader US economy if oil prices stay elevated for too long.
The Bureau of Labor Statistics will release new consumer price index data, an inflation gauge, on Wednesday. However, those February estimates won’t reflect the effects of the war-induced oil spike.
Here’s what economists and finance pros are saying about what the oil spike means for American consumers, especially at the gas pump, and how soon it’ll show up in the inflation numbers.
Michael Feroli
Michael Feroli, chief US economist at J.P. Morgan, told Business Insider he expects this to be a more straightforward story for energy prices than tariffs, where the effects took a while to show up in the inflation data.
“It’s pretty safe to say that barring some really surprising reversal here, we’re going to see a pretty decent increase in the March CPI,” Feroli said. “Then April and beyond, I think, are more open to debate.”
Feroli thinks the ongoing situation will have a limited effect on core inflation, which excludes volatile food and energy prices.
“Certainly, there are categories like airfares that you see some pass through, but most estimates suggest almost a trivial impact on non-energy goods and services,” he said. “Though it remains a little bit of a risk that it could be more than we’ve seen in recent decades.”
Matt Colyar
Matt Colyar, an economist at Moody’s Analytics, told Business Insider that the energy shock comes amid affordability concerns in the US.
“Over time in America, it’s very well understood and known that energy prices, gasoline prices, prices at the pump hold a very uniquely salient point in people’s minds,” he said. “Maybe it’s the big signs with the big luminescent numbers that everyone drives by constantly. They’re very aware of these prices.”
Colyar said the war’s effects won’t show up in the inflation report coming out this week, but likely will show a dramatic rise in the headline estimate in the March report, scheduled for April.
He said energy prices will likely have spillover effects on other items.
“Energy is an input into manufacturing. Energy is an input into the agricultural industry,” he said, adding, it also affects airlines.
Mark Hamrick
Mark Hamrick, senior economic analyst at Bankrate, told Business Insider the oil shock “creates a real problem for consumers in the broader economy at a time when affordability challenges have already been first and foremost in terms of the major issue that voters and consumers have been railing against.”
He added that it could have an uneven impact, since lower- and middle-income households will have to allocate more of their budgets to gas.
Hamrick said we don’t know how long it would take for the oil shock to be resolved. He pointed to disruptions to supply chains early on in the COVID pandemic that took time to recover from.
“We don’t know the duration or scale of the conflict, but it’s clearly evolved from a US- and Israeli-led conflict to one that has enveloped the region,” Hamrick said. “The risk is that it does persist, and therefore the inflationary shocks persist.”
Laurence Ales
Laurence Ales, a professor of economics at Carnegie Mellon University’s Tepper School of Business, sees two likely effects as oil prices surge: higher prices at the pump that could then cut into other consumer spending downstream.
“The key channel is energy cost,” he told Business Insider. “This is an important cost for firms that will, in part, pass on to consumers. The channel is well documented, but the effect is small. An additional equilibrium channel starts from the consumer. High gas prices impact consumer spending in non-essential categories. Lowering demand will put a downward pressure on those prices.”
Tad DeHaven
Tad DeHaven, an economic and fiscal policy analyst at the Cato Institute, a Washington, DC, think tank, notes that the oil shocks are coming at a time when the US economy needs stability. As such, it could be compromised in the short term. But he shares the sentiment that the overall impact on US consumers will depend on the conflict’s duration.
“While the US is not as directly dependent on Hormuz as many other countries, oil is priced in a global market,” he told Business Insider. “So even if Americans do not face outright shortages, they would still feel it through higher gasoline prices, higher diesel and jet fuel costs, and broader increases in transportation and business expenses. If the disruption is brief, the result is likely to be a temporary inflationary bump.”
Desmond Lachman
A senior fellow at the American Enterprise Institute, Desmond Lachman, provided some back-of-the-envelope estimates to Business Insider on the overall economic impact of rising oil prices.
“Mainstream estimates suggest that for every sustained $10 increase in the international price, US inflation would increase by between 0.15 and 0.3 percentage points and would subtract between 0.1 and 0.2 percentage points from economic growth,” he said. If oil prices settle around $100 a barrel, “the current level of gas prices could add over 1 percentage point to inflation and subtract between 0.5 and 0.75 percentage points from economic growth.”
Brock Weimer
“The economic impact of the conflict will likely depend largely on its duration and the extent of further disruptions to energy supplies — both of which are difficult to forecast. With oil prices now at their highest level since 2022, upward pressure on headline inflation is likely, which could act as a headwind to economic activity,” Brock Weimer, analyst of investment strategy at Edward Jones, said in written comments. “However, as noted in our Market Pulse, geopolitical events have historically produced only short‑term effects on financial markets.”
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