Higher energy prices tied to war in the Middle East will push up U.S. inflation this year, according to the Organization for Economic Cooperation and Development.
In its updated outlook this week, the OECD raised its U.S. inflation forecast to 4.2% for 2026, up 1.2 percentage points from its previous estimate in December and well above the 2.6% rate in 2025.
“The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy
prices will add markedly to business costs and raise consumer price inflation, with adverse
consequences for growth,” the OECD said.
Disruptions to shipments through the Strait of Hormuz weighed on the Paris-based organization’s inflation forecast. The narrow waterway typically handles about a fifth of the world’s oil supply.
Traffic through the strait has been effectively halted amid the war with Iran, constraining global energy supplies and affecting other commodities such as fertilizers.
The OECD warned that a prolonged disruption to shipments through the Strait of Hormuz — or sustained closures of oil and gas facilities — could significantly worsen the outlook.
Americans are already seeing the impact at the pump, with the average price for a gallon of regular gas up roughly $1 over the past month to $3.98 as of Friday. In parts of California, average prices were over $6 per gallon.
President Donald Trump has said he expects energy prices to fall quickly once the conflict ends.
Last week, Trump wrote on Truth Social that “we are getting very close to meeting our objectives as we consider winding down our great Military efforts in the Middle East.”
Where the Fed sees inflation going
Jerome Powell has said higher energy prices are likely to push up inflation in the near term but emphasized that the broader economic impact of the war in the Middle East remains uncertain.
“It is too soon to know the scope and duration of the potential effects on the economy,” Powell said earlier this month.
While higher energy prices could lift inflation and weigh on growth, Powell pushed back on the idea of “stagflation” — a term often used to describe a worst-case economic scenario.
“I would reserve the term ‘stagflation’ for a much more serious set of circumstances,” Powell said. “That is not the situation we’re in.”
According to the latest projections, Fed policymakers expect their preferred inflation measure — the Personal Consumption Expenditures Index — to end the year at 2.7%, up from a previous estimate of 2.4%.
The March Consumer Price Index report, due Apr. 10, will offer an early read on how much rising energy prices are feeding into broader inflation.