United States: inflation soars by 3.3% in one year, due to the fallout of the war

In triggering a surge in inflation, the Middle East war initiated by Donald Trump has eroded the purchasing power of Americans and dampened their spirits, according to data released on Friday. As negotiations are set to begin between Washington and Tehran, two indicators provide an idea of the economic and political cost of the conflict in the United States, a few months before crucial legislative elections.

Consumer prices (CPI) rose by 3.3% last month compared to a year ago, according to official statistics. This marked an increase from 2.4% the previous month. The main factor behind this acceleration was the surge in fuel prices between February and March (+21.2%), a direct consequence of the Middle East conflict. Such a monthly increase had not been observed since the creation of a gasoline index in 1967, according to the US Bureau of Labor Statistics.

Markets were expecting such figures, covering the period immediately following the outbreak of war in the Middle East on February 28 through Israeli-American bombings on Iran. Tehran retaliated by blocking maritime traffic in the Strait of Hormuz, through which 20% of the world’s oil and gas typically transits. Despite being the world’s largest oil producer, the United States was not shielded from the surge in prices.

Fuel prices quickly rose. A gallon (3.78 liters) of regular gasoline currently costs an average of $4.15, compared to around $3 just before the war. The American administration, elected in part on the promise of boosting purchasing power, has been reiterating for over a month that the economic disruptions domestically will be temporary.

On Friday, after the release of inflation figures, officials (White House spokesman Kush Desai and Donald Trump’s economic advisor Kevin Hassett) highlighted expense categories that experienced price drops, particularly eggs, beef, and sports tickets. “I think our policies for purchasing power are starting to bear fruit,” Mr. Hassett said on the Fox Business television channel, known for its generally favorable view of government initiatives. With a smile, the presenter remarked that his response was “a bit of a smokescreen.”

Economists warn that the current month will also be unfavorable in terms of inflation. “This is just the beginning,” predicts Heather Long, an economist at Navy Federal Credit Union, who expects to see food and transportation costs rise in turn. According to Gregory Daco of EY, “the oil shock caused by the crisis in the Middle East is expected to cost each American household at least $350.”

Consumer confidence plummeted by 10% in a month, according to the other indicator released on Friday. “Many consumers believe that the conflict with Iran is causing unfavorable economic changes,” notes Joanne Hsu, who heads this benchmark barometer produced by the University of Michigan. She specifies that most responses were collected before the announcement of the precarious truce.

Diane Swonk of KPMG points out in a note that prices have been rising faster than Americans’ incomes for the past five years. “The cumulative impact on purchasing power, in a context marked by erosion of job security and fears related to artificial intelligence, profoundly affects consumer behaviors,” she believes. According to the economist, “too many of them struggle to maintain their standard of living,” but “are trying with all their might.”