-- A quarter-long closure of the crucial Strait of Hormuz will likely push US inflation higher by 0.6 percentage points this year, researchers at the Federal Reserve Bank of Dallas said in an article Friday.
Energy prices have surged in the aftermath of the US-Israel war with Iran that spread across the Middle East. The Strait of Hormuz, a key trading route, was effectively blocked by Iran.
Iranian Foreign Minister Seyed Abbas Araghchi said on Friday that the strait is "completely open" following a ceasefire between Israel and Lebanon. It will remain open during the 10-day ceasefire that began on Thursday, he said. Crude oil prices plunged following the announcement.
"The opening of Hormuz was made possible by a ceasefire between Israel and Lebanon," Viktor Shvets, head of global desk strategy at Macquarie Capital, said in a note. "However, this can be only described as a temporary and tenuous agreement."
The Dallas Fed analysis assumed a 15% shortfall in global oil supplies due to a Strait of Hormuz closure that lasts for a quarter. Inflation figures in the article refer to the personal consumption expenditures price index.
"Under this current scenario, 2026 fourth-quarter-over-fourth quarter headline PCE inflation increases by 0.6 percentage points, while core PCE inflation increases by 0.2 percentage points," according to the authors of the article.
Assuming that the Strait of Hormuz remains shut for three quarters, the Dallas Fed report showed US headline inflation increasing by 1.1 percentage points and core prices moving 0.3 points higher.
In its latest Beige Book released Wednesday, the US central bank said that majority of its districts saw moderate price increases since the war broke out. Consumer inflation accelerated to its highest monthly reading in nearly four years in March, official data showed last week.
The Fed should be "nimble" in adjusting monetary policy in light of heightened risks to inflation and employment driven by the Middle East conflict, minutes from its March 17-18 meeting showed.
"Our analysis covers a broad range of plausible outcomes," Dallas Fed researchers said. "The differences in inflation outcomes can be traced to differences in assumptions about the nature of the oil supply disruption, mirroring differences in public perceptions. How relevant each of these scenarios is may change as the geopolitical situation in the Middle East evolves."