The war in Iran isn’t just raising gas prices. It’s also helped push inflation to its highest level in three years, according to new government data out Tuesday.
The White House says these price increases are temporary. “The gas will go down as soon as the war is over,” President Donald Trump said a few weeks ago. “It will drop like a rock.”
But some economists worry higher prices are here to stay for the foreseeable future, even comparing the situation to the pandemic or the oil-driven economic crisis of the 1970s.
Here’s what’s going on and what can be done about it.
You’re reading The 5-Minute Fix newsletter, explaining the day’s biggest political news. Get it in your inbox every weekday for free.
It’s not just gas prices weighing on the economy
High fuel prices make it more expensive to ship food, which is raising the cost of groceries. Heating and cooling is also more expensive. All of this feeds inflation; higher energy prices are a main driver of the recent increases in prices, report The Washington Post’s Andrew Ackerman and Federica Cocco.
The conflict in Iran is also preventing goods from getting where they need to go, which could soon leave stores shelves emptier, said Diane Swonk, chief economist with the tax and accounting firm KPMG.
“The closure of the Strait of Hormuz is more than an energy shock,” she said. “It’s a supply chain shock, and it’s got a tail that will last long after the strait reopens. It’s disrupting and roiling supply chains that echo the pandemic.”
Inflation hasn’t fully come down since the pandemic, said Michael Strain, an economist with the right-leaning American Enterprise Institute, who says the Iran war and Trump’s tariffs are only aggravating it — and making the cycle harder to break.
When gas prices suddenly spike, businesses raise prices and consumers start pulling back, which manifests inflation.
“Inflation is a largely psychological phenomenon,” he said, “and so if consumers and workers and businesses expect inflation, it will be higher than the Federal Reserve’s target.”
Swonk said this inflation and supply chain shock could reverberate beyond grocery stores and the pump. Soon petroleum-based products, which are in everyday household items, could be more expensive. And she pointed to the abrupt shutdown of Spirit Airlinesearlier this month over skyrocketing jet fuel prices as a warning of what more could come.
“It accelerated one airline in the United States going belly up, where people literally had to disembark planes on the tarmac,” Swonk said. “That’s extraordinary.”
Congress could marginally lower gasoline costs
There’s bipartisan talk of suspending the federal gas tax to try to help. The government taxes gasolineto help pay for highway maintenance and repairs. Many states also levy their own gas tax.
It could help on the margins. The federal gas tax is just about 18 cents per gallon, and the cost of gasoline has risen almost $3 since the war started in February.
But suspending the federal tax could come at a high cost, economists say. The tax helps pay for much-needed highway maintenance and repairs, and it hasn’t kept up with inflation. So the Highway Trust Fund it feeds is struggling and could run out money by 2028.
Congress could vote to stop the fighting in Iran
The Constitution says only Congress can declare war, so Democrats in Congress have pushed several times for a resolution that would stop Trump from fighting in Iran.
Republicans have mostly opposed this, but with the war increasingly weighing on Americans’ pocketbooks, it’s possible some Republicans join with Democrats to vote to limit what Trump can do in Iran, my Post colleagues report.
A new CNN-SSRS poll finds 77 percent of Americans say Trump’s policies have increased the cost of living in their community, including a majority of Republicans.
And even some economists in Trump’s orbit are acknowledging that gas prices could remain high long after the war ends.
“Getting back to $3 gas is going to be quite a challenge,” Stephen Moore, an economist and longtime Trump adviser, toldmy Post colleagues.
It’s also not clear how the war ends, said Rosa Brooks, a national security expert at the Georgetown University Law Center. The CIA secretly assessed that Iran has the ability to keep fighting for months, The Post reported last week.
“I’d say we are firmly in quagmire territory,” Brooks said.
The post Why the Iran war is hurting the economy appeared first on Washington Post.
