As oil prices surge due to the war with Iran, the United States is now projected to post the highest consumer inflation rate among the Group of 20 major economies this year. Mortgage rates have also climbed to their highest level in six months amid expectations that the Federal Reserve may raise interest rates to combat inflation. Analysts say President Donald Trump is now facing an extremely costly "war bill" ahead of the November midterm elections. Trump has slowed military strikes each time oil prices rose, but his repeated verbal missteps are diminishing the market's responsiveness.
The Organisation for Economic Co-operation and Development (OECD) forecast on the 26th (local time) that U.S. consumer price inflation would reach 4.2% this year — the highest among major economies including the United Kingdom (4%), the eurozone (2.6%), Japan (2.4%) and China (1.3%). The latest U.S. projection is 1.2 percentage points higher than the estimate from three months ago (3.0%). "If energy price increases become prolonged, corporate costs will rise markedly, pushing up inflation rates and negatively affecting growth," the OECD warned.
Even after Trump returned to the White House last year and launched an aggressive tariff offensive including reciprocal tariffs, annual inflation came in at 2.6%. The figure underscores just how quickly war-driven oil price surges have raised inflation expectations in a short period.
U.S. West Texas Intermediate (WTI) crude closed at $94.48 per barrel on the day, up 41% from $66.89 on the 27th of last month — just before the war began. The average U.S. gasoline price jumped from $2.98 per gallon (approximately 3.79 liters) just before the war to $3.98 on the day.
Surging oil prices are also pushing up U.S. mortgage rates. According to Freddie Mac, the government-sponsored mortgage lender, the average rate on a 30-year fixed-rate mortgage rose to 6.38%, up 0.16 percentage points from the previous week. That is the highest level in roughly six months, since early September last year. The increase reflects growing expectations that the Federal Reserve will raise interest rates to counter high inflation.
Trump has tried to calm markets with words each time they have been rattled. His post on Truth Social announcing a "10-day reprieve on strikes against Iranian power plants" came just 11 minutes after the close of a stock market session that ended with a sharp sell-off.
Investors are in outright panic. "Every time oil prices approach the $95 to $100 range, the Trump administration has come out with remarks to ease tensions," one energy trader said. "Investors are watching Trump's mouth, trying to predict when policy will shift." German investment bank Deutsche Bank has created a dedicated metric called the "Pressure Index" to forecast Trump's sudden policy changes and the intensity of his off-the-cuff remarks. Trump frequently escalates his threatening rhetoric against Iran on weekends, when oil markets are closed, for the same reason.
Yet Trump's verbal influence is steadily weakening. When he announced a "5-day attack reprieve" on the 23rd of this month, Brent crude fell 6.48% within one hour. But when he mentioned a "10-day reprieve" on this day, oil prices dropped only about 1% in the hour that followed, and crude breached $110 intraday for the first time in five trading days since the 20th.
The starkly contrasting reactions of countries neighboring the Middle East war — why are they stepping in to mediate another country's conflict?
