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 and stood at 4.2% y/y in May (+1.8pp in three months and a highest since 2023) – almost entirely on the back of gasoline prices, with the non-energy index edging up as well but to a lesser extent (+0.3pp to 2.9% y/y in three months).
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 have risen.
However, macro conditions are significantly less inflationary than in 2022, although small businesses have raised their price plans.
