The economic fallout from the U.S.-Iran war is proving more stubborn than the conflict itself, with economists warning that a wave of inflation will persist long after the fighting stops, the Financial Times reported Sunday.
Prices Already Climbing
U.S. inflation jumped to 3.3 % in March, its highest level in two years, driven largely by surging fuel costs, according to the Bureau of Labor Statistics. Petrol prices have climbed from $2.98 per gallon when the conflict began in late February to $4.08 on Friday, according to the AAA motoring group. Diesel has surged from $3.76 to $5.59 a gallon, approaching its 2022 record.
“We were on a very good trajectory of inflation going down. Now there is somewhat a reversal,” IMF Managing Director Kristalina Georgieva told the FT, warning the fallout would not “evaporate overnight even if the war ends tomorrow.”
Second-Order Effects Mounting
Iran’s closure of the Strait of Hormuz, through which a fifth of global oil supply typically transits, triggered the energy shock. Brent crude surged from around $70 a barrel to more than $110 at its peak. Tehran announced Saturday the strait remains under its “strict control” despite a tentative ceasefire.
Nitrogen fertiliser costs have risen more than 30% since the conflict began, according to the American Farm Bureau Federation. Jet fuel prices have doubled. PepsiCo, Inc. (NASDAQ:PEP) Chief Financial Officer Steve Schmitt warned this week that consumer price increases are coming. “Our assumption is that inflation will come,” he said.
Economist Mark Zandi said Sunday the war has already pushed U.S. gasoline costs up by an estimated $21.3 billion over six weeks. “The economic damage from the war with Iran is mounting,” Zandi wrote on X, adding that tax refund cushioning from the One Big Beautiful Bill Act, totalling roughly $47.1 billion, is expected to taper off in coming weeks.
Economist Justin Wolfers warned Monday that Strait of Hormuz uncertainty is lifting fuel futures through 2027 and beyond, calling Energy Secretary Chris Wright’s optimism potentially “outdated.” “Until we get resolution, expensive gas isn’t going anywhere soon,” Wolfers posted on X.
Treasury Secretary Scott Bessent acknowledged growth may be slower this quarter due to the conflict but the economy was in “such good shape” before the war began. He said the economic impact would be “path dependent” on the conflict’s duration.
The International Monetary Fund now forecasts U.S. inflation at 3.2% for 2026, up from a pre-war projection of 2.5%, while the OECD has raised its forecast from 2.8% to 4.2%.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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