The Iran war delivered a quick, though relatively contained, negative impact to US activity data and surveys.
CPI inflation recorded its largest monthly increase since 2022 in March, before reaching 3.8% y/y in April (+1.4pp in two months and a highest since 2023) – almost entirely on the back of gasoline prices, with the non-energy index edging up only moderately.
Business sentiment, which was on an upward trajectory before the shock, stayed resilient but signaled a faster input-price growth (a leading indicator of inflation) and longer delivery times, both directly linked to Middle East turmoil and coming on top of the issue of tariffs.
Meanwhile, the outlook of households, which were already low on optimism, has further deteriorated due to their sensibility to gasoline prices, while inflation expectations were rising.
However, macro conditions are significantly less inflationary than in 2022, and small businesses have not yet materially raised their price plans.
