Introduction#
Goldman Sachs has issued a warning regarding inflation risks in the United States, primarily driven by rising energy prices amid the ongoing conflict involving Iran. This situation is putting pressure on global oil markets, which could have significant implications for consumers.
Oil Price Projections#
Analyst Jessica Rindels noted that Goldman Sachs' commodities strategists expect the price of Brent crude oil to average $105 in March and $115 in April. This forecast assumes that oil shipments through the Strait of Hormuz, a crucial shipping route, will be severely limited for about six weeks. In a worst-case scenario, if disruptions last up to 10 weeks, Brent prices could potentially reach or exceed the record levels seen in 2008.
Impact on Inflation#
The bank emphasizes that the primary impact of the conflict on U.S. inflation will stem from higher oil prices. According to Goldman, a 10% increase in crude oil prices can raise the headline Personal Consumption Expenditures (PCE) inflation by 0.2 percentage points and core inflation by 0.04 percentage points. Their model predicts that energy-driven core inflation could peak at around 0.35 percentage points by the end of the year.
Broader Economic Effects#
The conflict is also contributing to rising prices for Gulf exports, including aluminum and nitrogen fertilizer. Goldman Sachs anticipates that increased fertilizer costs will lead to a 1.5% rise in food prices this year, adding another 0.1 percentage point to overall inflation. Additionally, the bank has adjusted its December 2026 headline PCE forecast to 3.1% and estimates a 30% probability of a recession. While they still expect two rate cuts from the Federal Reserve this year, they caution that the risks could tilt towards tighter monetary policy if oil prices continue to rise.