As Trump declares inflation tamed, Iran conflict threatens new price pressures

Just as President Donald Trump has been insisting that inflation is on the run, the war involving Iran threatens another price spike that could undermine his central case for lower interest rates.

Oil prices jumped overnight as markets reacted to the escalation in the region, following a joint U.S.-Israel strike. rose more than 5% while gained about 6%, both off their overnight highs but still sharply elevated.

The increase in oil prices adds another layer to recent indicators that, while inflation is well off its highs of a few years ago, underlying price pressures remain. Historically, surges in energy costs have often preceded broader inflation increases.

Generally speaking, “war has proven to be 'inflationary,' as it is associated with negative supply shocks,” wrote Thierry Wizman, global FX and rates strategist at Macquarie Group. “Indeed, even before the new U.S.-Iran war, oil prices were higher on hoarding, and since hostilities began, prices are being pushed up by higher insurance premiums and forced re-routing of maritime shipping.”

There also have been signs outside of energy markets that inflation pressures may be firming.