Inflation Could Soar To 10%

It is instructive to look back at the CPI from June 2022. Inflation hit 9.1% year over year. That was the highest increase since November 1981. According to the BLS release, “The increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors.” The energy index was the largest single contributor. The component of this rose the most gasoline. Although food prices rose, it was dwarfed by the larger category the BLS labels “energy commodities.

Whether it happened exactly in June 2022, part of the inflation was a rise in supply chain costs. Moving to the present, trucks move 73% of all freight in the US. Diesel prices are up 45% since the Iran war began. Over the same time, gasoline rose 40%. It is nearly impossible to make the case that the truck owners can absorb a jump of this magnitude without passing some, or not all of it, to customers. The effects of this alone will shoot the price of truck-delivered goods high. The effects of tariffs are not entirely different, particularly if they have become broad-based.

Today, the World Bank warned that energy prices would rise sharply in 2026. In its Commodities Market Outlook, its expert wrote, “Energy prices are projected to surge by 24% this year to their highest level since Russia’s invasion of Ukraine in 2022, as the war in the Middle East sends a severe shock through global commodity markets.” They added that fertilizer prices would also jump. That, in turn, will flow through to food prices. Once again, a reference to 2022 shows the common thread with today.

Economists speak about how high inflation can go. Many say the rise will be muted by a soon-to-be drop in crude prices. However, this is offset by Brent oil prices rising to $126. At the start of the year, that figure was $55. This will be ruinous to global GDP if the price does not come down.

And, it will not back down even if there is an end to the war with Iran. The estimate of ships trapped as they prepare to transit through the Strait of Hormuz is between 800 and 2,000. It will take months to bring that number down to a level closer to where it was three months ago.

It remains a world in which trade is essential. Goods made in other nations will also be affected by the blockade. Therefore, imported goods will not bring relief to US inflation.

The current inflation situation has the hallmarks of the causes of 9.1% inflation in June 2022. The difference is that oil prices did not stay extremely high month after month after month that year.