Many economists are raising their inflation forecasts, largely due to the recent surge in crude oil prices, which is undermining consumer purchasing power in the U.S. This shift in outlook is concerning, especially with two key inflation reports set to be released this week.
In a recent economic assessment, Morningstar projected inflation to rise to 3.3% this year, up from a previous expectation of 2.6% in 2025. A significant contributor to this increase is the anticipated bounce in energy prices, which is expected to add about 0.65 percentage points to personal consumption expenditures (PCE)—a key inflation indicator—by 2026. While the impact of oil prices on inflation is noteworthy, it’s less severe than the 1.1-percentage-point impact seen in 2022, linked to geopolitical tensions like Russia’s invasion of Ukraine.
Morningstar’s Chief U.S. Economist, Preston Caldwell, emphasized that the current oil price spike doesn’t mirror the supply shocks experienced in 2021-2022. Today’s conditions exhibit weaker aggregate demand, suggesting that the ongoing energy crisis may have a shorter-term effect. He also dismissed comparisons to the inflationary pressures of the 1970s; back then, petroleum products accounted for roughly 8.3% of total personal consumption, compared to around 3.3% today.
Jamie Dimon, CEO of JPMorgan Chase, reinforced this perspective in his shareholder letter, asserting that while geopolitical tensions have escalated, the global economy is better prepared to handle these energy market fluctuations.
Additionally, tariffs continue to exert upward pressure on prices, with estimates indicating that they contributed about 0.3 percentage points to inflation in 2025. In light of these developments, the Federal Reserve is likely to delay any interest rate reductions. Analysts anticipate the Fed will maintain the current Federal funds rate of 3.5% to 3.75% through the end of the year, with potential cuts totaling 1.25 percentage points planned for 2027-2028.
Wells Fargo also adjusted its forecasts on Monday, raising its 2026 consumer price index (CPI) projection to 3.1% from 2.8% and its global inflation target to 2.9% from 2.6%. Consequently, the investment firm has eliminated its earlier expectations of two quarter-point rate cuts this year.
As anticipation builds for inflation data, the U.S. Bureau of Economic Analysis is set to release the delayed February PCE price index, the Fed’s favored inflation gauge, which is expected to show a 2.8% year-over-year increase. In contrast, the core PCE, which omits food and energy prices, is projected to rise by 2.9%.
An expected uptick in the Consumer Price Index (CPI) for March indicates a concerning trend, with estimates suggesting a 3.4% annual increase, significantly higher than February’s 2.4%. The historical correlation between spiking oil prices and rising inflation suggests that this jump is not unexpected. As U.S. crude oil futures climbed to nearly $111.54 per barrel, the market remains sensitive to ongoing geopolitical tensions, particularly concerning Iran.
Overall, navigating these economic uncertainties will require astute attention to inflationary trends and their potential implications on investment strategies.
