Persistent inflation risk in 2026: the Iranian…

Persistent inflation risk in 2026: the energy shock of the Middle East conflict and the upward revisions of forecasts

Inflation, thought to be on a durable disinflation trajectory toward central-bank targets (2% for the Fed and the ECB), saw a marked rebound in spring 2026. Driven by a major geopolitical shock, the Iran/Israel conflict and the disruptions of the Strait of Hormuz, the May 2026 data confirm an acceleration of consumer prices, both in the United States and in the euro zone. Forecasts are systematically revised upward. This phenomenon, called a “silent contagion” of energy pressures toward the core of inflation, poses a tangible risk for the rest of 2026 and beyond.

This article examines the latest quantified data (BLS, Eurostat, ECB, Fed, forecaster surveys), identifies the transmission channels and sketches realistic scenarios for the second half of 2026, without excessive extrapolation.

1. United States: a clear inflationary rebound in May 2026

The Bureau of Labor Statistics (BLS) data published on 10 June 2026 for the month of May are unambiguous:

Headline CPI (all items): +0.5% month on month (adjusted) and +4.2% year on year (against +3.8% in April). It is the highest level since April 2023.
Core CPI (excluding food and energy): +0.2% MoM and +2.9% YoY (against +2.8% in April), highest since September 2025.
Energy: +3.9% MoM and +23.5% YoY. The energy index contributed more than 60% of the monthly rise in the overall CPI.
Gasoline: +7.0% MoM and +40.5% YoY.
Food: +0.2% MoM and +3.1% YoY.
Shelter: +0.3% MoM and +3.4% YoY.

Source: BLS CPI News Release, 10 June 2026 and detailed report.

Core PCE (the Fed’s preferred measure), available through April, stood at +3.3% YoY (against +3.2% in March). The Cleveland Fed’s nowcasts for June 2026 anticipate a headline CPI around 4.05% YoY.

Macro context and labour market

The unemployment rate stood at 4.3% in May 2026. The labour market stays relatively tight, limiting the disinflation of services components. Consumers’ short-term (1-year) inflation expectations rose, while long-term expectations stay broadly anchored near 2% per the New York Fed and University of Michigan surveys.

2. Euro zone: inflation at 3.2% in May, highest since September 2023

Per Eurostat’s preliminary data (May 2026):

Headline HICP: 3.2% YoY (against 3.0% in April and 2.2% a year earlier). Highest level since September 2023.
Core HICP (excluding energy and food): about 2.5% (up from 2.2% in April).
Energy: +10.9% YoY, the strongest rise since February 2023.

Germany (+2.7%), France (+2.8%), Spain (+3.6%) and Italy (+3.3%) all show an acceleration.

Eurosystem staff projections (June 2026) – published very recently:

Indicator	2026	2027	2028	Notes
Headline HICP (average)	3.0%	2.3%	2.0%	+0.4 pp vs March 2026
Quarterly peak	3.4% (Q3-Q4)	-	-	Energy
HICP excl. energy & food (HICPX)	2.5%	2.5% (peak 2.7% early 2027)	2.2%	Services ~3.3% at peak
Energy	8.4%	-1.3%	-0.1%	Peak 12.5% Q3 2026

Assumptions: average oil price at $96.9/barrel in 2026 (then falling). The energy shock of the Middle East conflict is the main driver of the upward revision. The indirect effects on non-energy components stay contained thanks to weaker demand and the penetration of Chinese imports.

Source: Eurosystem staff macroeconomic projections, June 2026

The ECB signalled a probable rate hike (the first in three years) at its June 2026 meeting to anchor expectations.

3. Exogenous shocks: the Iran/Israel conflict and US tariffs

The geopolitical energy shock (main 2026 driver)

Start of the conflict: late February / early March 2026.
Closure / major disruptions of the Strait of Hormuz (20% of global oil trade).
Brent price: from ~$72/bbl in late February to a peak near $120/bbl, then ebbing toward $92-98/bbl in early June (extreme volatility depending on ceasefire hopes).
Direct impact: sharp rise in fuel, transport and energy-input prices.

The IMF (World Economic Outlook April 2026) incorporates this shock in its baseline scenario (limited conflict +19% of energy prices in 2026):

Global growth: 3.1% in 2026 (downward revision).
Global headline inflation: 4.4% in 2026 (then 3.7% in 2027).
Adverse scenario (prolonged conflict + financial tightening): growth 2.5%, inflation 5.4%.

Source: IMF WEO April 2026

The World Bank anticipates a 24% rise in energy prices in 2026 and inflation of 5.1% in developing economies.

Tariffs and trade fragmentation

US tariffs (existing or reinforced policy) add upward pressure on imported goods (clothing, electronics, certain consumer goods). Estimates from the San Francisco Fed and other institutions show a gradual pass-through over 6-12 months toward goods inflation and, indirectly, toward services.

These two shocks (energy + tariffs) overlay already-“sticky” components: shelter in the US and services in the euro zone.

4. Forecasts revised upward for 2026

United States (recent surveys):

Survey of Professional Forecasters (Philadelphia Fed, Q2 2026): headline CPI Q4/Q4 2026 at 3.5%, core 2.9% (significant upward revisions versus previous surveys).
March 2026 FOMC SEP (since revised): 2026 core PCE around 2.7% median (upside risks acknowledged by many participants).

Euro zone: see the ECB table above (3.0% headline 2026).

Global: 4.4% per the IMF (baseline scenario).

5. Scenarios for the second half of 2026 and risks

Central scenario (likely if gradual de-escalation)

Headline inflation peak in Q3 2026 (US ~4.0-4.3%, EA ~3.4%).
Gradual ebb in H2 thanks to base effects on energy (if Brent falls back toward $80-90/bbl).
Core stays high: US ~2.8-3.0%, EA ~2.5-2.7% through 2027.
Fed: hold or slight hike of the fed funds rate (currently 3.50-3.75%); possible first hike late 2026 if the data persist.
ECB: one or two 25-bps hikes in 2026.

Adverse scenario (prolonged conflict or escalation)

Oil price > $110/bbl durably.
US headline inflation > 4.5% on average in H2, core > 3.2%.
EA: HICP > 3.5% on average in 2026, second-round effects on wages and services prices.
Global growth < 2.5% (IMF adverse).
Risk of de-anchoring of medium-term inflation expectations → more aggressive monetary tightening → risk of recession or light stagflation.

Identified upside risks

Energy → core pass-through stronger than expected (production, transport, food costs).
Tariffs: cumulative effect on global supply chains.
Expectations: rise in market measures and short-term surveys.
Supply: persistent supply-chain disruptions (Hormuz + other geopolitical friction points).
Demand: US consumer resilience despite inflation.

Downside risks: rapid resolution of the conflict + sharp oil fall + marked demand slowdown (rising US unemployment).

6. Implications for markets and monetary policy

Policy rates: “higher for longer” or “higher and hiking” becomes the base scenario. The Fed’s new chair, Kevin Warsh, faces his first FOMC (16-17 June 2026) in a hot-data context.
Bond markets: US 10-year and Bund yields under upward pressure (possible steepening if growth resists).
Equities: defensive sectors (energy, utilities, consumer staples) favoured; growth and tech under pressure if rates rise.
Currencies: dollar supported by the expected rate differential.
Crypto / stablecoins: indirect correlation via macro risk and liquidity (risk of negative correlation in case of tightening).

Conclusion: vigilance required through 2027

The May-June 2026 data mark a turning point: inflation risk is no longer residual but has become central again for the rest of the year and 2027. The geopolitical energy shock acts as an “accelerator” on economies already facing structural rigidities (shelter, services, tariffs).

Central banks (the Fed under Warsh, the ECB) have no choice but to stay data-dependent and ready to tighten if necessary to avoid a de-anchoring of expectations. Investors must factor into their scenarios an average 2026 inflation significantly above the forecasts of early in the year (US headline probably between 3.7 and 4.2% on an annual average depending on the conflict’s outcome; EA around 3.0%).

“Disinflation” is not dead, but it is postponed and made more costly. The second half of 2026 will be decisive: everything will depend on the evolution of the Middle East conflict and the economies’ capacity to absorb the shock without a surge in underlying prices.

Sources and links (all verified June 2026)

US CPI May 2026 – Bureau of Labor Statistics: https://www.bls.gov/news.release/cpi.nr0.htm and detailed PDF.
Eurosystem Staff Projections June 2026 – European Central Bank
World Economic Outlook April 2026 – International Monetary Fund: https://www.imf.org/en/publications/weo/issues/2026/04/14/world-economic-outlook-april-2026
Trading Economics / aggregated data – US Inflation Rate, Euro Area Inflation (June 2026 updates).
Reuters, CNBC, Bloomberg – Real-time coverage of the Iran conflict, oil prices and market reactions (May-June 2026).
Survey of Professional Forecasters Q2 2026 – Federal Reserve Bank of Philadelphia.
FOMC Minutes & SEP March 2026 – Federal Reserve.
World Bank Commodity Markets Outlook April 2026 – for energy and emerging-market inflation forecasts.

Article written on the basis of official public sources and market consensus as of 12 June 2026. The data are accurate as of the publication date of the official releases cited. The scenarios remain conditional on geopolitical developments and on Donald Trump’s moods.