America’s War in Iran. Prices rose in May to 4.2% year-on-year, the highest level in 37 months, according to the United States Bureau of Labor Statistics, in charge of disseminating this statistic. Inflation has not reached that level since April 2023, when the aftermath of the Russian invasion of Ukraine was still being felt.
“The index of all items, except food and energy, core inflation, increased 2.9% in the year, after an increase of 2.8% in the 12 months ending in April,” explains the statistical agency, which emphasizes that “the energy index increased 23.5% in May; while the food index increased 3.1% in the last year.”
The war in the Middle East, started by Washington and Tel Aviv on February 28, has caused a shock in the energy markets. After the bombings on Tehran, the Islamist regime blocked the Strait of Hormuz, a strategic passage through which a fifth of the world’s oil and other critical materials for agriculture, such as fertilizers, or the pharmaceutical sector passed before the war. The conflict has been entrenched for weeks, with ceasefire announcements, but no progress in negotiations to end hostilities.
Analysts believe, however, that the data relieves pressure on central banks. They focus on the evolution of underlying inflation, which is less volatile by eliminating energy and food from the calculation. “The slight weakness in year-on-year core inflation could reinforce the argument that the peak of war-related inflation could be behind us and that the inflation outlook could improve in the future. Of course, this depends on oil remaining stable in the future,” says John Briggs, head of US interest rates strategy at Natixis North America, in statements reported by Bloomberg.
In any case, the pressure is high for the Federal Reserve to change its strategy and start raising rates to combat the rise in inflation. The new governor of the Fed, Kevin Warsh, has publicly maintained that it is possible to be more lenient with one-off inflation because the development of artificial intelligence will cause increases in productivity and decreases in prices in the medium and long term.
But on the other hand, there is the price of oil, which has skyrocketed since the start of the war in Iran. It has reached around 120 dollars a barrel, although these days after huge amounts of reserves and other measures were released to try to feed demand, it is trading at 92 dollars a barrel, around 35% more than at the beginning of the bombings.
The monthly CPI rose 0.5% in May, after increasing 0.6% in April. In the monthly comparison, the energy index rose 3.9% in May, and 10.9% in March. “The index represented more than 60% of the monthly increase in all articles,” warns the statistical office. The housing index also increased by 0.3% in May. Food became more expensive by 0.2% during the month.
The prices that increased the most during the month were those of communications, airfares, medical care, personal care and recreation. On the contrary, the products that became cheaper were motor vehicles, insurance, furniture and household services, and new vehicles.
