Key insights
- A survey of economists forecasts a doubling of inflation to 6% in Q2 due to rising oil prices stemming from geopolitical tensions. This is expected to dampen economic growth, with GDP forecasts revised downward. Higher inflation may prompt a more hawkish stance from the Federal Reserve, potentially leading to tighter monetary policy and negative implications for US equities.
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If your household budget has struggled to keep up with inflation around 3%, just wait until it doubles.
Economists now expect the Consumer Price Index to rise at an annualized 6% rate in the second quarter, according to a survey of 33 professional forecasters by the Federal Reserve Bank of Philadelphia released Friday. That’s more than double the prewar forecast of a 2.7% inflation rate, which was largely based on late February readings before the war in Iran caused an oil crunch and sent fuel prices soaring, and well above the 3.1% inflation rate in the first quarter of the year.
The survey highlights how the closure of the Strait of Hormuz has triggered a chain of price increases, shaking up the economic outlook. Fuel prices have surged more than $1.50 a gallon since February, according to AAA, and those higher transportation costs are showing up in all kinds of products. Inflation is now running at its highest since 2023, and will be at its highest since 2022 if the forecast is correct.
Higher prices are denting economic growth, too. Forecasters now expect the economy, as measured by the Gross Domestic Product, to grow 2.2% in 2026, down from 2.5% in the previous forecast.
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