Iran conflict may push US inflation near 4%; recession fears surge

The surge in energy prices, visible at US gas stations since early March, is set to be fully revealed next week when new consumer price statistics are released, with gasoline costs—up an estimated 20% from February after seasonal adjustment—expected to be the single largest driver of the inflation hike in the country.

However, the increase in energy costs has not yet translated into higher prices for most other goods and services, with the possible exception of air travel, according to Commerzbank AG.

“But this is likely only a matter of time,” analysts at Commerzbank said in a report. 

US inflation forecasts and spreading price pressure

The recent, significant price hikes for computer chips and industrial metals are expected to drive up the cost of certain electronics and IT goods, according to the report. 

Evidence of this price pressure has already appeared at the producer level and in import prices as of February.

“Overall, we expect US consumer prices to have risen by 0.9% in March compared to February and by 3.3% from March 2025,” Commerzbank’s Senior Economists Christoph Balz and Ralph Solveen said. 

The year-on-year rate was 2.4% in February.

For the "core rate" (excluding energy and food), a month-on-month increase of 0.3% and a year-on-year increase of 2.7% are anticipated, according to both experts. 

The decline in inflation, as measured by the Consumer Price Index (CPI), is likely to conclude at this point.

“In our main scenario of a war lasting until the end of May, inflation is likely to rise to nearly 4% in the coming months,” the economists further said. 

In any case, we have already pointed out on several occasions that consumer prices understate inflation risks.

The 2% inflation target is based on the Personal Consumption Expenditure (PCE) deflator, which the central bank prioritises.

The PCE inflation rate is usually a bit lower than the CPI inflation rate, and even prior to the energy price shock, the headline PCE rate was 2.8%, with the core rate at 3.1%.

The energy price shock resulting from the conflict in Iran is having an impact on the US economy. 

While initial concerns focused on the inflationary effects, a growing number of investors are now primarily worried about the pressure this is placing on the overall economy.

Germany’s manufacturing scenario

The German industry also anticipates a major impact from the Iran War, largely due to the expected sharp increase in energy prices. 

According to an Ifo Institute survey, at least 90% of industrial companies share this concern.

However, the ultimate severity of this burden remains uncertain, as it is contingent on hard-to-assess factors, such as the duration of the conflict.

The upcoming figures for incoming orders, production, and goods exports, due next week, will not offer any fresh insights, according to Commerzbank.

This is because they cover developments in February, a period preceding the Israeli and US attack on Iran.

“However, this does not mean the figures due next week are meaningless,” the economists said. 

The information will offer insight into the pre-war situation, specifically whether there were indications of slightly increased demand, even in non-defense industries, they added. 

The German government's defense orders are anticipated to have driven a significant boost in the sector's production.

Commerzbank projects a 1% month-over-month increase for both industrial order intake and overall industrial output.

“In terms of production, the relatively cold weather is likely to have had a negative impact, meaning that growth in the core manufacturing sector is likely to be greater,” the economists added. 

However, a genuine upward trend is unlikely to be evident either in industrial production or in the core measure of orders.