CBO says Iran conflict responsible for over a third of U.S. inflation rise
The Congressional Budget Office reports that the war with Iran accounts for more than one-third of this year’s inflation increase and could push rates higher through early 2027.
The Congressional Budget Office released a report Tuesday linking the war with Iran to a significant share of the United States’ recent inflation surge. The agency estimates the conflict caused more than one-third of the price increases recorded this year and projects it will drive over 40% of inflation in the second quarter of 2026 and add about half a percentage point to inflation in the first quarter of 2027.
The report attributes the inflationary pressure mainly to reduced oil and natural-gas shipments through the Strait of Hormuz and the Red Sea. Since the war began, gasoline prices have risen about 45% to $4.32 per gallon, while diesel has climbed 66% to a record $6.26 per gallon. Higher energy costs are expected to lift borrowing rates, with the average 30-year mortgage rate climbing from under 6% before the conflict to 7.22% as of Tuesday.
The CBO also highlighted the war’s fiscal impact on the Pentagon, estimating that replacing expended munitions will cost roughly $21.7 billion through August 1, with missile-defense interceptors alone costing $13.1 billion. Maintaining current operations could require $2 billion to $3 billion each month, and costs could rise if the conflict escalates. The agency noted it could not assess damage to U.S. bases because the Defense Department has not provided detailed information.
"The war is a one-two punch that’s burning a hole in Americans’ pockets and burning a hole in our munitions supply, hurting our military readiness," Senator Elizabeth Warren said in a written statement calling for an end to the fighting.