KEY POINTS
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U.S. inflation is projected to hit 4.2% in 2026, up from 2.6% in 2025, driven by the energy shock from the Iran war and Strait of Hormuz disruptions, according to a new report from the Organization for Economic Cooperation and Development.
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U.S. GDP growth is expected to slow to 2.0% this year and 1.7% in 2027 as rising costs weigh on consumer spending and real income growth.
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A revised global inflation figure of 4.0% is forecast in 2026, with China, South Korea, and India also facing steep energy-driven price increases.
The conflict in the Middle East will drive U.S. inflation to 4.2% this year, the highest rate among G7 nations, as surging energy prices ripple through the broader economy, the Organization for Economic Cooperation and Development said Thursday.
The revised forecast, published in the OECD Economic Outlook, March 2026, represents a 1.2 percent increase from the organization’s previous projection and a jump from 2025 inflation of 2.6%. The spike is tied directly to a near-halt in energy shipments through the Strait of Hormuz, which handles roughly 20% of global oil supply.
U.S. Growth Expected to Cool
The OECD now projects U.S. GDP growth at 2.0% in 2026, then slowing to 1.7% in 2027. Strong investment in artificial intelligence is partially offsetting the drag, the report said, but slowing real income growth and weaker consumer spending are expected to restrain output.
The report highlighted the unknown scope and time horizon of the conflict with Iran, noting its potentially disruptive economic consequences, while precisely identifying the impact of higher energy costs on economic growth.
“The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth,” the report stated.
Global Inflation Expected to Expand
Inflationary pressures extend well beyond U.S. borders. The OECD report projects that G20 inflation will reach 4.0% in 2026, 1.2 percentage points above its December forecast. The Group of 20, or G20, is an intergovernmental forum of 19 countries, the European Union, and the African Union whose members collectively account for roughly 85% of global economic output and 75% of world trade.
The OECD outlook expects global inflation to ease to 2.7% in 2027. China, South Korea, and India are among the economies facing steep energy-driven price increases, the organization said.
Global GDP growth is expected to pull back from 3.3% in 2025 to 2.9% this year and edge up to 3.0% in 2027. Without the conflict, the OECD said, it would have revised its global growth estimate upward by 0.3 percentage points.
What It Means for Construction
Rising energy costs feed directly into construction material prices, transportation costs, and equipment costs. Should U.S. inflation accelerate and GDP growth slow, project owners and contractors would face a tighter profit margin environment for bidding, financing, and material purchasing. Diesel and fuel-intensive operations are particularly exposed.
The OECD’s projections assume energy market disruptions will moderate after mid-2026, with oil, gas, and fertilizer prices gradually declining. But the organization cautioned that a scenario in which prices peak higher and stay elevated longer could cut an additional 0.5 percentage points from global growth and add 0.9 percentage points to inflation.
Central banks are urged to stay vigilant, the OECD stated, and governments are called on to keep any household support measures “temporary and well-targeted.” This suggestion points to overly broad fiscal responses, such as sweeping rate reductions or untargeted subsidies, that risk fueling the very inflation they aim to relieve.
The Organization for Economic Cooperation and Development comprises 38 member countries that span the world and provides governments with evidence-based economic analysis, data, and policy recommendations.
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