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The Impact of the 2026 Iran War on U.S. Inflation: A Scenario Analysis

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Abstract

This paper shows how to assess the inflationary impact of the rise in the price of oil caused by the 2026 Iran War. We first generate projections of the quarterly price of oil from a calibrated DSGE model of the global economy under a range of scenarios and then incorporate these projections into a monthly VAR model of the impact of U.S. gasoline price shocks on inflation and inflation expectations. Our analysis speaks to the magnitude and persistence of the impact of higher oil prices on headline and core PCE inflation and on household inflation expectations.

Suggested Citation

  • Lutz Kilian & Michael D. Plante & Alexander W. Richter & Xiaoqing Zhou, 2026. "The Impact of the 2026 Iran War on U.S. Inflation: A Scenario Analysis," Working Papers 2609, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:103008
    DOI: 10.24149/wp2609
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    as
    1. Richard G. Newell & Brian C. Prest, 2019. "The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata," The Energy Journal, , vol. 40(3), pages 1-30, May.
    2. repec:aen:journl:ej40-3-newell is not listed on IDEAS
    3. William B. Peterman, 2016. "Reconciling Micro And Macro Estimates Of The Frisch Labor Supply Elasticity," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 100-120, January.
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    Keywords

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    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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