The recent surge in global energy prices triggered by the conflict involving Iran is anticipated to push U.S. inflation to its highest point since 2023. Consumer price data scheduled for release is expected to show an annual increase of 3.8% in April, up from 3.3% in March, according to economists surveyed by Bloomberg. The core inflation figure, which excludes volatile food and energy costs, is projected to rise slightly to 2.7% from 2.6%.

The escalation in oil prices followed the onset of hostilities between the U.S., Israel, and Iran at the end of February, leading analysts to expect headline inflation to be particularly sensitive to energy market developments. Market participants and policymakers will closely examine the core inflation measure for evidence that rising costs are being passed on to consumers.

However, some economists argue that the underlying core inflation increase may not be directly due to energy price pressures. Citi economists Veronica Clark and Andrew Hollenhorst suggest that methodological factors related to missing data from the government shutdown in late 2023 could be contributing to the recent inflation uptick. They highlight that shelter inflation figures may reflect a catch-up effect, incorporating two months’ worth of price increases in a single reporting period.

The Iran conflict has also altered expectations for Federal Reserve policy. While futures markets previously priced in two or three interest rate cuts at the start of 2026, current forecasts show a diminished likelihood of reductions, with a roughly one-third chance of a rate increase by spring.

Meanwhile, Japan’s financial authorities have reportedly intervened in currency markets since late April to support the yen, with estimated purchases totaling around ¥10 trillion ($60 billion). Analysts at MUFG and Bank of America point out that this scale of intervention is comparable to a similar effort in April-May 2024 that did not produce a lasting strengthening of the yen. Since interventions began on April 30, the yen has appreciated modestly against the dollar, moving from above ¥160 to below ¥157.

Analysts caution that sustained gains for the yen may require a combination of factors, including a de-escalation in Middle East tensions, which could ease oil price pressures on Japan as a major energy importer, and hints of a more hawkish stance from the Bank of Japan. Without these developments, authorities may need to intervene again.

In the United Kingdom, economic data due later this week is expected to show robust GDP growth for the first quarter of 2026, potentially providing welcome news for the Labour government following its recent election setbacks. The Bank of England anticipates growth of around 0.5%, while economists surveyed by Reuters expect it could be as high as 0.6%.

Stronger growth figures could prompt markets to anticipate additional rate hikes by the Bank of England, especially as inflationary pressures remain elevated amid higher energy costs linked to the Iran conflict. However, the central bank has previously signaled skepticism over first-quarter growth data, noting that business surveys indicate more modest underlying expansion and suggest persistent economic slack.

Economists also expect mixed signals in March data, with some impacts of the Middle East conflict beginning to affect consumer and business activity. Rising petrol prices and increased uncertainty are likely dampening economic output in services and industrial sectors, according to Investec economist Sandra Horsfield.

Reflecting ongoing geopolitical risks, economists surveyed by Consensus Economics have reduced forecasts for U.K. economic growth in 2026 to 0.6%, down from earlier expectations of 1%.