- The Organization for Economic Cooperation and Development projects 4.2% inflation in 2026.
- Higher gas pump prices are just the first of broader impacts on consumer costs.
- The report sees some relief in sight with sharply lower inflation in 2027.
U.S. households that have already been struggling with the rising costs of basic necessities could be facing even more serious budgetary challenges in the year ahead thanks to economic fallout from the ongoing Middle East war.
That according to a new forecast from the Organization for Economic Cooperation and Development which predicts U.S. inflation to rise to 4.2% in 2026, far ahead of the 2.68% average rate throughout 2025.
“The evolving conflict in the Middle East has human and economic costs for the countries directly involved, and will test the resilience of the global economy,” the report reads. “A halt in shipments through the Strait of Hormuz and the closure or damage of energy infrastructure has generated a surge in energy prices and disrupted the global supply of energy and other important commodities, such as fertilizers.
“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.”
According to a Thursday report from AAA, the average price of a gallon of regular across the country is $3.98, $1 per gallon more than a month ago.
“The national average could reach $4 a gallon in the coming days for the first time since August 2022,” said Julian Paredes, spokesperson for AAA Mountain West Group. “Gasoline demand remains on the rise as spring break season continues, another factor in surging pump prices.”
Utah drivers are feeling even more pain at the pump with the average per gallon price now at $4.17, per AAA data, almost $1.40 per gallon more than this time last month. When broken down by Utah metro area, St. George is seeing the highest average price in the state at $4.22 per gallon.
Price impacts beyond a fill-up
While gas prices may be the most clear evidence of impacts the Iran war is having on family budgets, higher energy costs come back to hit consumer pocketbooks in numerous other ways.
Regular gasoline prices have risen sharply, around 30%, since the U.S. and Israel launched attacks on Iran late last month, but diesel fuel, which powers the trucks and other vehicles that transport raw materials, consumer goods, agricultural products and much more around the world is up even more, with diesel prices currently 50% higher than before the conflict began.
Alex Jacquez, chief of policy and advocacy at the Groundwork Collaborative, a progressive policy group, told The Guardian that the impact of oil and gas shortages on the supply chain can be categorized as first-order effects or second-order effects.
First-order effects, Jacquez explained, hit consumers directly, like higher prices at the gas pump. Second-order impacts are much broader and can lead to price hikes on just about any product or commodity that includes a shipping or transport component.
“It’s just a matter of when they work their way through the supply chains,” Jacquez said. “Maybe it’s on next month’s orders, or maybe next week’s orders, or whatever it may be. But eventually some of these increases we’ve seen are going to get passed through, if they get large enough.”
While the OECD report sees a bleak outlook when it comes to rising consumer costs in the year ahead, analysts say 2027 could bring some relief. The report predicts overall U.S. inflation will fall to 1.7% next year.