Perc Pineda, PhD
Chief Economist, Plastics Industry Association
The geopolitical conflict in Iran, which led to the closure of the Strait of Hormuz—the world’s most important oil transit corridor, accounting for approximately 20% of global oil and liquefied natural gas consumption according to the U.S. Energy Information Administration—caused oil prices to rise sharply.
Oil Price Surge
The West Texas Intermediate (WTI) crude oil price climbed from $67.02 per barrel on February 28, 2026 (the start of the conflict) to a peak of $111.54 per barrel on April 3, 2026. Brent crude oil rose from $72.87 per barrel at the outset to $118.03 per barrel on April 29, 2026.
The surge in crude oil prices rippled through the global economy. Although the United States is energy self-sufficient overall, it continues to import specific crude blends for efficient refining into the petroleum products consumed daily. Energy (including both commodities and services) accounts for roughly 7.5% of the Consumer Price Index (CPI) basket, so swings in energy commodity prices exert significant upward pressure on domestic inflation.
Since the conflict began, energy prices recorded their largest monthly increase in March. On a seasonally adjusted basis, energy prices rose 10.9% month-over-month, with energy commodities surging 21.3%. Gasoline and fuel oil prices jumped 21.2% and 30.7%, respectively. Energy commodity prices remained elevated in April and May, rising an additional 5.6% and 6.7%. This pushed headline year-over-year CPI inflation to 4.2% in May, with overall energy prices up 23.5%, energy commodities up 40.6%, gasoline up 40.5%, and fuel oil up 58.9%.
Ceasefire and Falling Oil Prices
Recent news of a U.S.-Iran ceasefire framework has triggered a continued decline in oil prices from their peaks. As of June 22, 2026, WTI stood at $73.61 per barrel and Brent at $77.68 per barrel. With lower crude oil prices, can headline inflation also be expected to moderate in the coming months?
The Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia projects median headline CPI inflation of 6.0% (annual rate) for Q2 2026 and 3.0% for Q3 2026. While the Q3 forecast implies de-escalation or resolution of the conflict, U.S. inflation in June is unlikely to differ significantly from May’s reading. June CPI will be released on July 10, 2026.
External shocks like higher oil prices tend to produce lingering effects. Market adjustments are not instantaneous. Realigning global supply chains takes time, and economic incentives may redirect inventories toward higher-return markets, such as increased energy supplies to Asian countries to meet previously unmet demand. Meanwhile, summer consumption of energy—for home cooling, travel, and related activities—tends to be seasonally higher, which could sustain some price pressure in the near term.
Bottom Line
Declining oil prices should exert downward pressure on headline inflation over the next several months, though the pace of disinflation may be gradual due to these residual and seasonal factors. Core inflation measures (which exclude volatile food and energy) will provide a clearer signal of underlying trends.
