The report found the war was responsible for more than one-third of the increase in inflation this year, and inflation will likely continue to grow in the first quarter of next year, NBC News reported.
The CBO specifically blames the war for more than 40% of inflation during the second quarter of 2026 and an estimated half a percentage point of higher inflation during the first quarter of 2027. Interest rates are likely to rise as a result, making borrowing costlier, the report found.
Interest rates are likely to keep rising as a result, making borrowing more costly, the report found. The rate on the typical 30-year mortgage was under 6% before the war started; it was at 7.22% on Tuesday, according to Mortgage News Daily. Wall Street, likewise, expects the Federal Reserve to raise its key interest rate Wednesday in a bid to tamp down inflation.
The main driver of increased inflation is fewer oil and natural gas shipments through the Strait of Hormuz and the Red Sea, the CBO report said. The average price of a gallon of gasoline in the US is up 45% since the beginning of the war, hitting $4.32 as of Tuesday. Diesel, which is essential to the economy as it fuels farm equipment and other commercial vehicles, has increased 66%, to a record $6.26.
The Congressional Budget Office is a nonpartisan federal agency controlled by Congress that conducts analysis related to the federal budget and the economy.
The estimate comes a day after the Pentagon’s watchdog found the war against Iran resulted in a shortfall of US munitions and “bottlenecks” in supply chains.
The CBO report estimates it will be five years before the Pentagon is able to replace munitions expended during the war, which it estimates had cost roughly $38 billion as of August 1. That cost estimate does not include the price tag for repairing damage Iran inflicted on “hundreds of buildings and structures at US bases” in the Middle East.