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Rising oil prices triggered by the Iran conflict are threatening to reverse months of progress on US inflation, forcing the Federal Reserve into a policy corner where rate cuts may be delayed or replaced by hikes. With crude up more than 40% in a month, experts warn the inflationary shock is spreading beyond energy into food, transportation, and chemicals, creating pressure that could keep monetary policy restrictive well into 2027. Oil Price Rally Complicates the Case for Falling US Inflation US crude oil prices have risen more than 40% since the Iran conflict began on February 28, 2026, when an Iranian blockade of the Strait of Hormuz disrupted one of the world’s most critical oil transit routes. The supply shock has rippled through energy markets with unusual speed. Unleaded gasoline prices jumped over 75 cents per gallon in that span, while diesel fuel topped $5 per gallon for the first time since 2022. Economics professor Wan Zhe of Beijing Normal University warned that US gasoline prices had surged more than 30% in just three weeks following the onset of hostilities. The transmission mechanism is straightforward. Energy accounts for roughly 7% of headline CPI, but its influence extends far beyond direct fuel costs. Rising oil prices increase input costs for transportation, agriculture, manufacturing, and petrochemicals, creating second-round effects that push core inflation higher over a 3-to-6-month lag. “Rising oil prices will trigger a full-blown rebound in global inflation, creating inflationary stickiness that becomes completely entrenched, completely reversing market expectations for interest rate cuts and extending high-interest-rate environments.” Wan Zhe, Economics Professor, Beijing Normal University Wan Zhe noted that the cost increases are spreading across energy, food, transportation, and chemicals sectors. Europe, Japan, and India face even greater pressure than the United States due to their dependence on energy imports, while the…

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Filed under: News - @ March 29, 2026 2:44 am