Oil prices tend to move markets quickly, but it’s typically the long-lasting moves that matter most for the broader economy.
Crude oil prices have shot to the moon in the wake of the Iran conflict, rising sharply from pre-war levels. Consequently, Goldman Sachs believes a sustained rise in oil prices will push U.S. inflation higher again.
According to a Seeking Alpha report, the bank’s economists argue that if crude oil stays elevated for roughly three months, headline inflation will rise meaningfully.
Their estimates map out a scenario in which a 10% increase in oil prices could lift U.S. CPI by roughly 0.28%, pushing inflation from 2.4% in January to nearly 3% by May.
Oil benchmarks have indeed cleared the much-talked-about $100 mark, Reuters reported. Brent was trading at $105.71 and WTI at $103.06 a barrel on Monday, March 9, after both briefly topped nearly $119.5 intraday.
If that wasn’t a stunning enough soundbite, oil prices have surged to their highest level since 2022 because of the war in the Middle East.
For comparison, just before the escalation with Iran began on Feb. 27, Brent and WTI closed at $72.48 and $67.02, respectively, gaining 46% and 54%.
In my recent articles, I’ve highlighted how the Iran war is weighing down both the macroeconomy and market sentiment.
For instance, the IMF angle essentially framed the inflation and growth risk from a sustained oil shock, while my Bank of America piece covered how that same shock is negatively impacting risk-on assets.
Goldman further sharpens that thesis by quantifying the CPI fallout if oil remains elevated, pointing to a rocky road ahead if things don’t clear up quickly.
Brent and WTI year-end closes, 2020-2025
- 2025: Brent $60.85; WTI $57.42
- 2024: Brent $74.64; WTI $71.72
- 2023: Brent $77.04; WTI $71.65
- 2022: Brent $85.91; WTI $80.26
- 2021: Brent $77.78; WTI $75.21
- 2020: Brent $51.80; WTI $48.52
Source: Reuters year-end settlement reports for final trading day of each year
Goldman says the oil surge becomes an inflation problem only if it lasts
Goldman Sachs is worried less about the short-term oil spike and its impact on inflation, and more about how long it lasts.
The meaningful impact on inflation occurs when crude prices remain higher long enough to ripple through gasoline, transportation, utilities, and other energy-linked costs across the economy.
Headline CPI numbers in particular are exposed to higher energy prices, making up 6.4% of that figure, while gasoline accounts for just 2.9%. So a steep increase in oil alone can visibly push the headline number higher, even if the broader trend hasn’t changed much.
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To better understand the situation, imagine inflation as a grocery receipt.
Headline CPI effectively includes everything that’s on the bill, covering items with typically wilder price swings such as gasoline and food. Core CPI removes those choppy items to show the underlying trend.
For example, if gas prices jump 20%, rent increases by 4%, and everything else is up 2%, headline CPI could print 3%, as core CPI sits closer to 2.1%.
That’s why oil spikes can push the headline inflation reading higher without impacting the underlying trend.
Goldman’s economists believe the critical threshold is roughly three months.
Additionally, higher oil prices can produce a stagflation dynamic, effectively pushing headline inflation higher while also negatively affecting growth.
Reuters reported Goldman’s estimate that for every $10-per-barrel increase in oil prices, U.S. GDP growth could be cut by nearly 0.1 percentage point if sustained.
A lot now depends on how long the Iran conflict lasts, and the outlook remains mostly mixed. The last comes from a CNBC interview with JPMorgan analysts, who said the fighting could end within the next few weeks.
Veteran economist Jeremy Siegel also spoke with CNBC about the Iran conflict’s impact on inflation and why it matters so much.
Inflation has cooled fast, but the Fed still hasn’t finished the job
Post-pandemic, there’s been plenty of chatter around the Fed’s 2% inflation goal, and at its core is something pretty simple: confidence.
When inflation is low and predictable, that tone feeds into households and businesses, which end up making better decisions about saving, borrowing, investing, and hiring.
On top of that, it keeps the longer-term inflation expectations mostly anchored. That’s an important dynamic because once people assume prices will continue running hot, inflation feeds on itself.
Related: Bank of America drops shock message on the stock market
One interesting caveat, though, is that the Fed’s formal 2% target is linked with PCE inflation, not CPI, even though typically that’s the number most consumers and markets track.
For perspective, CPI tracks prices consumers pay from a fixed basket, while PCE uses a far more flexible basket that’s based on spending data.
Given the economic upheaval post-pandemic, the Fed had to act fast.
Led by Chair Jerome Powell, the Fed first raised interest rates in March 2022, Investopedia noted, and then continued hiking for the next 10 consecutive meetings.
The progress has been enormous, but clearly the Fed wants a clean landing. For some color, headline CPI peaked at 9.1% in June 2022 and has come down to 2.4% in January 2026.
Core CPI came in at 2.5% in January. However, the Fed’s own preferred gauge showed a December 2025 reading of 2.9%.
U.S. headline CPI and core CPI, year-end 2020-2025
- 2025: Headline CPI 2.7%; Core CPI 2.6%
- 2024: Headline CPI 2.9%; Core CPI 3.2%
- 2023: Headline CPI 3.4%; Core CPI 3.9%
- 2022: Headline CPI 6.5%; Core CPI 5.7%
- 2021: Headline CPI 7.0%; Core CPI 5.5%
- 2020: Headline CPI 1.4%; Core CPI 1.6%
Source: U.S. Bureau of Labor Statistics December CPI releases
