The Organisation for Economic Co-operation and Development (OECD) has sharply lifted its inflation forecast for the United States, warning that conflict in the Middle East and persistent trade pressures will keep price growth well above central bank expectations through 2026.
In its latest interim outlook, the Paris-based body projected U.S. headline inflation will reach 4.2% in 2026, up from a previous estimate of 2.8% and significantly higher than the 2.7% forecast published last week by the Federal Reserve (the Fed).
The revision underscores the growing divergence between international assessments of inflation risks and the Fed’s baseline scenario.
The OECD attributed the upward revision primarily to energy market disruption stemming from the Iran conflict and the residual effects of U.S. tariffs, which continue to feed into global prices.
In its report, the organisation said a prolonged period of elevated energy costs would “add markedly to business costs and raise consumer price inflation, with adverse consequences for growth”.
A key transmission channel is the disruption to shipments through the Strait of Hormuz, a critical artery for global oil and gas flows.
The OECD warned that any sustained closure could push oil prices significantly higher, amplifying inflationary pressures across advanced economies.
Brent crude was trading at about US$105.60 per barrel this week, after renewed volatility linked to the conflict.
The report maintained its baseline assumption that energy prices will gradually ease but flagged substantial upside risks.
In a scenario where oil prices rise to $135 per barrel, global inflation could increase by an additional 0.7 percentage points in 2026 and 0.9 points in 2027.
Separate contingency modelling cited by U.S. officials is assessing the impact of prices as high as $200 per barrel, though such scenarios are not forecasts.
Despite the near-term spike, the OECD expects U.S. inflation to fall sharply to 1.6% in 2027, below the Fed’s 2% target.
Core inflation, which excludes food and energy, is projected at 2.8% in 2026 before easing to 2.4% the following year.
The outlook suggests limited scope for near-term monetary easing.
The OECD said it expects the Fed to hold interest rates steady through 2027, citing persistent core inflation and resilient economic growth.
However, it cautioned that policymakers must remain alert to second-round effects on wages and broader prices, noting that “policy adjustment may be needed” if inflation expectations become unanchored.
Growth forecasts were less heavily revised.
U.S. gross domestic product is expected to expand by 2.0% in 2026 before slowing to 1.7% in 2027, following a sharp deceleration to a 0.7% annualised rate in the fourth quarter of 2025.
Globally, the OECD left its 2026 growth forecast unchanged at 2.9% but raised its inflation projection for G20 economies to around 4%, up from 2.8% in its December outlook.
It warned that further disruption to Middle East energy infrastructure could trigger broader financial market repricing and weaken trade flows.
The organisation also urged governments to avoid broad-based subsidies in response to rising energy costs, recommending targeted and temporary support measures to limit fiscal risks while preserving incentives to reduce energy consumption.
