War with Iran Will Push U.S. Inflation Above 4 Percent, OECD Warns

The Organization for Economic Cooperation and Development warned on Thursday that the war between the United States and Iran will push American inflation above 4 percent this year, sharply revising its forecast upward from the 2.8 percent it had projected before the conflict began and complicating the Federal Reserve's plans to lower interest rates.

The Paris-based organization's interim economic outlook, released alongside updated projections for all major economies, painted a grim picture of the war's cascading economic effects. The OECD estimated that the conflict has already added approximately 1.2 percentage points to U.S. consumer price inflation through higher energy costs, disrupted supply chains, and increased uncertainty that is dampening business investment.

OECD Secretary-General Mathias Cormann said the economic consequences of the war extend far beyond the direct combatants and warned that a prolonged conflict could tip the global economy into a period of stagflation, characterized by rising prices and slowing growth. He urged all parties to pursue a diplomatic resolution before the economic damage becomes self-reinforcing.

The revised inflation forecast reflects the dramatic increase in energy prices since the war disrupted oil and natural gas flows through the Strait of Hormuz. Brent crude oil, which traded near $70 per barrel in late February, has climbed above $110, and U.S. gasoline prices have risen to an average of $3.76 per gallon. Natural gas prices have also surged, particularly in Europe and Asia, where supplies of liquefied natural gas from Qatar have been curtailed by the conflict.

The OECD said the inflation impact will be felt most acutely in transportation costs, which flow through to the prices of virtually all consumer goods. Trucking and shipping rates have already increased 15 to 20 percent since the war began, and those increases are beginning to appear in retail prices for food, household goods, and building materials. Airlines have announced fuel surcharges of up to $50 per ticket on domestic routes.

The forecast poses a significant challenge for the Federal Reserve, which had been on track to cut interest rates by mid-2026 as inflation appeared to be converging toward the central bank's 2 percent target. The war-driven inflation surge has upended that trajectory, forcing the Fed into a difficult position between supporting economic growth and maintaining price stability.

Fed Chair Jerome Powell said last week that the central bank was closely monitoring the conflict's economic effects and would adjust policy as conditions warranted, but he offered no specific guidance on the timing or direction of future rate decisions. Financial markets have responded by pricing out the rate cuts that had been expected, with federal funds futures now implying no reduction in the benchmark rate before the end of the year.

The OECD also cut its U.S. growth forecast, projecting GDP expansion of 1.4 percent in 2026, down from the 2.2 percent it had forecast in December. The organization cited reduced consumer spending power due to higher energy prices, declining business confidence, and tighter financial conditions as the primary drags on growth. It noted that the housing market and consumer discretionary sectors were particularly vulnerable to the combination of higher inflation and elevated interest rates.

Globally, the outlook was similarly downbeat. The OECD cut growth forecasts for the euro area, Japan, and most emerging market economies, noting that the energy price shock is being felt worldwide through interconnected commodity and financial markets. Only oil-exporting nations outside the conflict zone, such as Norway, Canada, and several African producers, received upward revisions to their growth projections.

The White House pushed back on the OECD's assessment, with National Economic Council Director Kevin Hassett saying the organization was overstating the inflation risk and underestimating the resilience of the American economy. He said the administration expected inflation to moderate as military operations succeed in reopening the Strait of Hormuz to commercial traffic, a timeline he described as weeks rather than months.