President Donald Trump and Republicans just received the worst inflation news before the midterm elections: Prices rose more than expected in September.
This news did not surprise American voters. Polls show they are furious about the high cost of living that has persisted since the pandemic, but has been exacerbated this year by Trump’s policies — including tariffs and, above all, the war in Iran.
To alleviate some of the pricing pain, the Trump administration has reached into its bag of tricks. More than a month ago, the U.S. Navy launched a high-stakes effort to help tankers move Gulf oil out of the Strait of Hormuz. And in an attempt to greet Mary, Trump last week announced a controversial deal to drop some sanctions on Russia to import a relatively small amount of diesel from the country.
Iran and its Houthi allies are now undermining both operations. An increase in attacks on tankers and oil infrastructure over the past week has driven up oil and diesel prices. The disruptions led to a sharp decline in transits through the Straits of Hormuz and Bab al-Mandeb, after largely returning to pre-war levels.
The Trump administration was never going to solve the inflation problem in the month leading up to the midterm elections. But its latest attempt to get positive pricing news hit a brick wall this week.
Wednesday’s consumer price index revealed a familiar picture: Inflation continued to rise in September, driven mainly by rising energy costs.
Gas prices rose 9.1% during the month and ended September up more than 34% compared to the same period last year. Fuel oil prices rose 15.3% last month and have jumped more than 74% over the past year.
These higher costs are starting to spread to other sectors of the economy. As my colleague Matt Egan pointed out Tuesday, the war in Iran is costing the average American household an additional $2,000, according to Moody’s Analytics.
Of particular concern to Wednesday’s inflation report was a surprising rebound in housing costs and rents, a significant contributor to inflation that had eased in the spring and summer.
All services rose 0.4% during the month — prices that tend to rise as yoga studios, lawn services and others charge their customers more to offset their rising costs. These service prices may just be a consequence of the war in Iran, but economists worry when they rise because they tend to be “sticky.”
Honestly: when was the last time your children’s preschool lowered prices?
The U.S. economy as a whole remains buoyant and consumers continue to spend despite rising prices. But higher inflation has translated into higher bond yields and Federal Reserve rates, raising borrowing costs and making housing even less affordable.
Iran knows all this. He knows the political pressure facing Trump and his Republican Party. And he knows what month it is.
After a relatively quiet September, at least 18 ships in and around the Middle East have been attacked in the past two weeks, according to Kpler, a shipping tracking service. On Tuesday, the Houthis, allies of Iran, appeared to strike the headquarters of Saudi oil giant Aramco.
“It appears that Iran is trying to keep oil prices high ahead of the midterm elections, and the best way to do that has been to increase attacks – both on its part and through the Houthis,” said Matt Smith, an analyst at Kpler.
The ever-changing narrative about who controls the Strait of Hormuz has changed yet again.
The complex operation of dark fleets protected by the navy, transporting Gulf oil out of the strait and unloading it on tankers in the Gulf of Oman, was enormously successful. Just a few weeks ago, oil transits out of the Strait of Hormuz had almost entirely returned to pre-war levels.
Over the past seven days, oil and fuel transits through the strait have fallen to 54% of their pre-war levels, according to Kpler.
Iran’s retaliation should surprise no one, said Dan Pickering, founder and chief investment officer at Pickering Energy Partners.
“As the United States touts its success in getting more crude to global markets, it’s a bit like it’s putting up a big ‘kick me’ sign,” he said. “Iran is attacking almost everyone. Meanwhile, Iran’s proxies, the Houthis, are attacking Saudi Arabia with substantial results.”
Recent Houthi attacks on Saudi infrastructure have raised the stakes of the war. Although the oil market largely dodged a bullet after a successful but fixable attack on Saudi Arabia’s crucial East-West pipeline, the recent attacks prove that the conflict will not abate anytime soon.
The final winner is not yet known: the US Navy could once again gain the upper hand. The administration could find other creative ways to bring more diesel to market.
In the meantime, the loser is clear: the American consumer. And in three weeks, they will deliver their verdict on the economy in the midterm vote.
Gn headline
