Donald Trump’s war in Iran has unleashed a torrent of inflation in the US that economists warn will linger long after the conflict ends, squeezing Americans ahead of November’s midterm elections.
The impact of the conflict has reverberated across the world’s biggest economy since its outbreak in late February and experts say that the inflationary shock will take time to recede.
“We were on a very good trajectory of inflation going down. Now there is somewhat [of a] reversal,” Kristalina Georgieva, managing director of the IMF, told the FT. “What we see is that short-term inflation expectations have moved up here in the United States.”
Across the world, she said, the fallout from the conflict would not “evaporate overnight even if the war ends tomorrow”.
Iran’s closure of the Strait of Hormuz in response to the US and Israel’s bombing campaign has triggered global fuel shortages and sent prices soaring. Brent crude, the global benchmark, jumped from around $70 a barrel when the conflict began to more than $110 a barrel at its height.
Tehran’s announcement on Friday that the strait, through which a fifth of global oil supply typically transits, would be opened for the duration of a tentative ceasefire, caused crude prices to drop more than 10 per cent to below $90/barrel. But on Saturday it said the Strait will not fully reopen and remains under Tehran’s “strict control”.
Even if the truce endures, the war will leave a lasting impact on economies across the world.
US inflation jumped to 3.3 per cent in March, its highest level in two years as measured by the Bureau of Labor Statistics consumer price index, driven in large part by a jump in petrol prices.
The IMF estimates US inflation of 3.2 per cent for 2026, up from a forecast of 2.5 per cent before the war broke out. The OECD has increased its forecasts from 2.8 per cent to 4.2 per cent.
“By the end of the year, prices will be notably higher than they would have otherwise been,” said Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.
“[Inflation] is going to gradually unwind, but it’s not going to fully unwind even by December — it’s going to be in some noticeable amount higher than it was in January.”
The initial burst of consumer inflation has been driven by prices at the pump. Petrol prices have surged from $2.98/gallon when the conflict began to $4.08 on Friday, according to the AAA motoring group.
But second-order effects, as the price of fuel feeds through into other areas of the economy, have yet to be fully felt.
“The risk is that the longer the conflict drags on and energy prices remain high, the more likely it is that these elevated prices will bleed into other prices, as businesses incorporate costly energy input costs in setting their prices,” said Christopher Waller, a Federal Reserve governor on Friday.
Diesel — which is a key input in everything from agriculture to trucking — has jumped from $3.76 to $5.59 a gallon since the conflict erupted. That leaves it close to the $5.82 record it hit in 2022 in the wake of Russia’s full-scale invasion of Ukraine.
Already many Americans are feeling the pinch. Larry Smith, a 72-year-old retiree living near Sealy, a town west of Houston, Texas, said he felt the impact of rising prices as soon as diesel started getting more expensive.
“This country still runs on diesel, when diesel goes up you start the ball rolling on everything,” said Smith, sitting in his blue Chevrolet pick-up. Stickers supporting the US military decorated his rear sliding window. “I’m an old jarhead, I’m not really impressed the way things are going.”
“We’re cutting back on a lot of things,” said his partner Delores Smith, a 65-year-old Walmart clerk, sitting in the passenger seat. “That’s why so many people are going back to work,” she said, explaining that many of her retired friends have had to take jobs again to make ends meet.
The University of Michigan’s consumer sentiment index fell to a record low in April amid gloom over rising prices. Its index of inflation expectations showed Americans anticipated prices rising 4.8 per cent over the next year, up from 3.8 per cent a month ago.
A doubling in jet fuel prices has pushed up costs for airlines, prompting them to raise ticket prices.
Nitrogen fertiliser costs, which have risen more than 30 per cent since the conflict erupted, according to the American Farm Bureau Federation, are expected to pass through to grocery costs later in the year.
As trucking costs rise, consumer executives have warned of potential price increases in the months ahead. “Our assumption is that inflation will come,” said PepsiCo chief financial officer Steve Schmitt this week.
Stew Leonard Jr, chief executive of the Stew Leonard’s grocery chain, said the rapid rise in diesel prices since the war began had made supplying its eight stores in the New York metropolitan area more expensive.
“Fuel touches every part of the food business,” Leonard told the FT. “We were spending $5,000 to get a tractor-trailer up here from Florida with all of our fruits and vegetables on it. Now it’s $7,000.”
He said that after years of relentless inflation, he and fellow leaders of the family-run company had decided to “eat” the costs for now. “It’s not great for our already thin margins in the supermarket business.”
Core inflation, which strips out volatile food and energy prices, edged up to 2.6 per cent in March versus the previous year, but economists expect it to gradually climb in the coming months as the effects of higher fuel prices feed through to other parts of the economy.
While the rise will be slower to take hold and smaller in magnitude than the surge in headline inflation, economists warned it would be “stickier” and take much longer to dissipate.
For Trump, who ran for office on a platform of combating inflation, lingering high prices pose a political threat. The president’s popularity has already been undermined by a stubborn affordability crisis that now threatens to undermine Republicans in this year’s midterm elections.
Damone Godbolt, a 37-year-old Walmart truck driver shopping in Sealy, bemoaned the rising prices as he criticised the president for intervening in the Middle East. “We should not be over there, it’s pointless to meddle in it.”
“We’re a family of seven, we feel it a lot,” he said of the higher prices. “We try and be more mindful with bills going up, we’re sacrificing some things, some of the luxury snacks, now we’re just getting the necessities.”
White House spokesman Kush Desai said: “While President Trump was always clear about temporary disruptions as a result of Operation Epic Fury, the Administration has never lost focus on implementing the President’s affordability agenda on the home front”.
He added that the White House’s “supply-side policies of deregulation, energy abundance, and tax cuts continue to cool inflation in the long term” and that “as energy markets stabilise with the reopening of the Strait of Hormuz, overall inflation should follow suit”.
The president this week dispatched some of his top lieutenants to take steps to tackle fuel costs.
Doug Burgum and Chris Wright, secretaries of the interior and energy, held a call with oil executives on Thursday urging them to increase production. Treasury secretary Scott Bessent, meanwhile, warned fuel retailers that the administration expected them to quickly slash prices as crude declines.
“We are going to be watching the gas stations, because they raised prices very quickly when the crude oil prices went up. We hope they will bring them down just as quickly as crude oil prices have come down,” he said.
Poorer Americans stand to be disproportionately hit by the inflationary shock, as they spend a higher proportion of their income on fuel.
“Wealthier people will spend more on energy too,” said Gagnon. “But if you’re poor, you really need to put gas in your car and heat your house and that looms large in your spending, so relatively speaking you are hit more.
In Sealy, Teresa Cano, a 50-year-old homemaker, said everything already feels more expensive.
“We used to buy three to four cases of water and now we buy one to two for twice the price,” she said. “We’re buying cheaper things instead of from regular brands.”
“The cashier just paid for the eggs,” she said. “I had $132, I said leave the eggs, she said let me pay.”
