Inflation pain could linger even after the Iran war ends: Economists warn of prolonged economic hardship
The prices of meats, poultry, fish, and eggs increased by 7.1% over the past year, while dairy and related products saw a 6.3% rise. Fruits and vegetables also became more expensive, with prices jumping 5.6% and 4.4%, respectively. These increases are particularly concerning for low-income households, which tend to allocate a larger portion of their budgets to essential items like food.
Diane Swonk noted that the ongoing inflationary pressures are not limited to food prices, as the cost of shelter, which accounts for a significant share of the average American's expenses, has also been rising steadily. The BLS reported a 5.1% increase in shelter costs over the past 12 months, with some areas experiencing even higher growth.
As the Federal Reserve works to bring inflation under control, consumers are being forced to make difficult choices to cope with the rising costs. Mark Zandi warned that the situation is likely to persist, at least in the short term, and that households should be prepared to tighten their belts further.
The Iran war has also had a profound impact on the global economy, with trade disruptions and increased energy costs affecting businesses and consumers alike. The reopening of the Strait of Hormuz, as outlined in the recent memorandum of understanding, is expected to provide some relief, but its effects will likely be felt gradually.
In the meantime, American consumers will have to continue navigating a challenging economic landscape, with inflation remaining a major concern. The Federal Reserve's commitment to achieving price stability is a positive step, but it may take time for the measures to take effect, leaving households to bear the brunt of high prices for the foreseeable future.
Kevin Warsh, the new Fed chair, emphasized the importance of addressing inflation, acknowledging that it is a significant burden for many Americans. As the central bank works to implement policies aimed at reducing inflation, consumers are advised to remain cautious and prepare for potential further increases in the cost of living.
The economic situation is complex, with multiple factors contributing to the current inflationary pressures. While the end of the Iran war and the reopening of the Strait of Hormuz may help alleviate some of the pressure, it is unlikely to be a silver bullet, and consumers should be prepared for a prolonged period of adjustment.
The price of tomatoes has risen 32%, lettuce has climbed 24%, coffee has jumped 17% and ground beef is up 12.1%, according to the BLS. At the same time, however, the prices of other goods have fallen, including a 35.2% decrease in the cost of eggs and an 8% reduction in butter.
David Ortega, a food economist and professor at Michigan State University, noted that the price of beef is driven in large part by supply constraints, drought and a strong demand for beef. Additionally, the price of tomatoes and lettuce has been impacted by foul weather in tomato-producing regions in Mexico and California, while tariffs have driven up the price of coffee, Ortega said.
"When it comes to food, it's not just one factor that's moving prices; it's really a convergence of factors, or what I like to call a 'perfect storm,'" Ortega added.
Bruce McClary, vice president of the National Foundation of Credit Counseling, said there has been a surge in Americans coming to his nonprofit group and partners across the country to seek help on managing debt and avoiding bankruptcy and debt collectors.
McClary stated that people are struggling with basic expenses, and it's not due to overspending on luxury items. He also noted that people of higher-middle-class income levels, up to $100,000 a year, are seeking financial counseling.
"A lot of people are entrenched in a cycle of survival debt that can only continue for so long before they end up hitting the wall," McClary said.
The National Foundation of Credit Counseling releases a quarterly Financial Stress Scale that measures the financial pain Americans are feeling on a scale of 1-10, with 10 being the worst. The group's most recent report showed the level of financial pain in the first quarter of the year at a 6.6, which was slightly better than the 6.8 recorded in the fourth quarter of last year, McClary said.
By comparison, in 2022, the stress scale was at 3.1, according to McClary.
"We've gone from a record low to a record high. It's an alarming increase," McClary said.
Zandi noted that wages aren't keeping up with inflation, with wage growth at around 3.5% while inflation is around 4%.
"In fact, real disposable income – that's after inflation, after-tax income – is falling on a year-over-year-basis," Zandi said. "That rarely happens outside of recessions."
He added that Americans will have to make some hard choices, including forgoing vacations and restricting spending to necessities only.
"They'll have to rein in spending," Zandi said. "That's the fodder for a much weaker economy because businesses may decide to hire less, lay off workers and unemployment will rise and you get into a kind of self-reinforcing negative cycle and potentially recession."
McClary advised clients to avoid turning to credit cards, which have average interest rates over 20%, to cover gaps in their budgets.
Total U.S. credit card debt was $1.25 trillion in the first quarter of this year, marking a jump from $1.18 trillion over the final three months of 2025, a recent study found – an increase of nearly 6%.
"If you're already on a tight budget, you don't want to look at your line of credit as a life raft," McClary said. "You want to find whatever solutions are available to avoid getting deeper into debt."
Zandi recommends that Americans bone up on being choosy shoppers: "You've got to price compare, look at different options that you have and be judicious in the way you're spending your money."
Ortega added that consumers should also learn to be flexible within categories of foods for which they're shopping.
"It also helps to look at store brands," Ortega said. "These are products that sell at a much more affordable price point, and oftentimes you're not sacrificing a lot on the quality front."
Diane Swonk noted that the ongoing inflationary pressures are not limited to food prices, as the cost of shelter, which accounts for a significant share of the average American's expenses, has also been rising steadily. The BLS reported a 5.1% increase in shelter costs over the past 12 months, with some areas experiencing even higher growth.
As the Federal Reserve works to bring inflation under control, consumers are being forced to make difficult choices to cope with the rising costs. Mark Zandi warned that the situation is likely to persist, at least in the short term, and that households should be prepared to tighten their belts further.
The Iran war has also had a profound impact on the global economy, with trade disruptions and increased energy costs affecting businesses and consumers alike. The reopening of the Strait of Hormuz, as outlined in the recent memorandum of understanding, is expected to provide some relief, but its effects will likely be felt gradually.
In the meantime, American consumers will have to continue navigating a challenging economic landscape, with inflation remaining a major concern. The Federal Reserve's commitment to achieving price stability is a positive step, but it may take time for the measures to take effect, leaving households to bear the brunt of high prices for the foreseeable future.
Kevin Warsh, the new Fed chair, emphasized the importance of addressing inflation, acknowledging that it is a significant burden for many Americans. As the central bank works to implement policies aimed at reducing inflation, consumers are advised to remain cautious and prepare for potential further increases in the cost of living.
The economic situation is complex, with multiple factors contributing to the current inflationary pressures. While the end of the Iran war and the reopening of the Strait of Hormuz may help alleviate some of the pressure, it is unlikely to be a silver bullet, and consumers should be prepared for a prolonged period of adjustment.
The price of tomatoes has risen 32%, lettuce has climbed 24%, coffee has jumped 17% and ground beef is up 12.1%, according to the BLS. At the same time, however, the prices of other goods have fallen, including a 35.2% decrease in the cost of eggs and an 8% reduction in butter.
David Ortega, a food economist and professor at Michigan State University, noted that the price of beef is driven in large part by supply constraints, drought and a strong demand for beef. Additionally, the price of tomatoes and lettuce has been impacted by foul weather in tomato-producing regions in Mexico and California, while tariffs have driven up the price of coffee, Ortega said.
"When it comes to food, it's not just one factor that's moving prices; it's really a convergence of factors, or what I like to call a 'perfect storm,'" Ortega added.
Bruce McClary, vice president of the National Foundation of Credit Counseling, said there has been a surge in Americans coming to his nonprofit group and partners across the country to seek help on managing debt and avoiding bankruptcy and debt collectors.
McClary stated that people are struggling with basic expenses, and it's not due to overspending on luxury items. He also noted that people of higher-middle-class income levels, up to $100,000 a year, are seeking financial counseling.
"A lot of people are entrenched in a cycle of survival debt that can only continue for so long before they end up hitting the wall," McClary said.
The National Foundation of Credit Counseling releases a quarterly Financial Stress Scale that measures the financial pain Americans are feeling on a scale of 1-10, with 10 being the worst. The group's most recent report showed the level of financial pain in the first quarter of the year at a 6.6, which was slightly better than the 6.8 recorded in the fourth quarter of last year, McClary said.
By comparison, in 2022, the stress scale was at 3.1, according to McClary.
"We've gone from a record low to a record high. It's an alarming increase," McClary said.
Zandi noted that wages aren't keeping up with inflation, with wage growth at around 3.5% while inflation is around 4%.
"In fact, real disposable income – that's after inflation, after-tax income – is falling on a year-over-year-basis," Zandi said. "That rarely happens outside of recessions."
He added that Americans will have to make some hard choices, including forgoing vacations and restricting spending to necessities only.
"They'll have to rein in spending," Zandi said. "That's the fodder for a much weaker economy because businesses may decide to hire less, lay off workers and unemployment will rise and you get into a kind of self-reinforcing negative cycle and potentially recession."
McClary advised clients to avoid turning to credit cards, which have average interest rates over 20%, to cover gaps in their budgets.
Total U.S. credit card debt was $1.25 trillion in the first quarter of this year, marking a jump from $1.18 trillion over the final three months of 2025, a recent study found – an increase of nearly 6%.
"If you're already on a tight budget, you don't want to look at your line of credit as a life raft," McClary said. "You want to find whatever solutions are available to avoid getting deeper into debt."
Zandi recommends that Americans bone up on being choosy shoppers: "You've got to price compare, look at different options that you have and be judicious in the way you're spending your money."
Ortega added that consumers should also learn to be flexible within categories of foods for which they're shopping.
"It also helps to look at store brands," Ortega said. "These are products that sell at a much more affordable price point, and oftentimes you're not sacrificing a lot on the quality front."
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