For nearly two years, Washington repeated the same comforting story. Inflation was under control. The Federal Reserve had won. The soft landing was intact. Growth remained resilient. Consumers were holding up. Reality, unfortunately, has started reading a different script. US inflation accelerated sharply again in April, reaching 3.8% year-on-year,  the highest level since 2023, as the Iran war continues to spread through the global economy via the oldest transmission mechanism in modern capitalism: energy. Petrol prices have surged nearly 28% in only two months. Food prices are rising at the fastest pace in almost four years. Airfares are climbing. Hotel prices are jumping again. Rents are accelerating. Electricity costs continue to rise relentlessly. And perhaps most importantly, wages are no longer keeping up. After adjusting for inflation, real average hourly earnings declined for the first time in three years. The American consumer, supposedly indestructible, is starting to lose purchasing power again.

That changes everything. Because modern economies are not sustained by stock markets or government narratives. They are sustained by consumers’ belief that they can continue spending tomorrow without becoming poorer today. Once that confidence weakens, the entire growth model becomes fragile. This is why the latest inflation report matters far beyond a single monthly number. The United States is now facing the return of the very scenario central banks feared most after Covid: imported inflation combined with slowing real purchasing power. In other words, a stagflationary dynamic.

The irony is brutal. The same administration that promised lower energy prices now finds itself trapped in a geopolitical conflict that is feeding directly into American inflation. The war against Iran was sold politically as a demonstration of strength. Economically, it increasingly resembles an oil shock. And oil shocks have a long history of humiliating policymakers. The mechanism is already visible everywhere. Higher oil prices increase transport costs. Transport costs increase food prices. Fertiliser becomes more expensive. Airlines raise fares because jet fuel prices have skyrocketed. Hotels increase prices because operating costs rise. Logistics become more expensive. Supply chains slow down again. Insurance costs surge. Shipping reroutes around conflict zones. Inflation spreads like contamination through the system. What makes the current situation particularly dangerous is that consumers are reaching exhaustion precisely as inflation returns. During the post-pandemic period, households still possessed excess savings, strong labour markets and rising nominal wages. Today, those cushions are fading. Credit-card balances remain elevated. Student-loan repayments have resumed. Mortgage rates are still restrictive. And now essential goods, fuel and food are accelerating again. Consumers can postpone buying a television. They cannot postpone eating or driving to work. This is why markets reacted nervously despite attempts to dismiss part of the CPI surge as technical distortions stemming from housing calculations and prior government shutdown effects.

The Fed now faces a deeply uncomfortable reality. Cutting rates too early risks reigniting inflation expectations precisely when energy prices remain unstable, and supply chains are deteriorating again due to the Middle East conflict. But maintaining restrictive rates for longer increasingly puts pressure on households, businesses and the property market. The fantasy of painless disinflation is fading rapidly. Bond markets understand this perfectly well. Rate-cut expectations for 2026 continue to collapse. Long-term yields remain elevated. Investors increasingly suspect that the world may not be returning to the ultra-low inflation regime that dominated the previous decade. And structurally, they may be right. Globalisation had acted for years as a giant deflationary machine. Cheap energy, cheap labour, stable shipping routes and predictable geopolitics compressed costs everywhere. That world is disappearing. What replaces it is more fragmented, more geopolitical and more inflationary. The Iran conflict is simply accelerating a transformation already underway.

The most dangerous element, however, is political. Inflation destroys confidence faster than almost any other economic phenomenon because it attacks daily life directly. Consumers tolerate abstract financial problems far more easily than they tolerate expensive food, expensive petrol and falling purchasing power. This is precisely why energy crises become political crises. Trump now faces a deeply uncomfortable contradiction. He continues to present the Iran strategy as a success while American households are increasingly paying for it every time they visit a petrol station or supermarket. The timing could hardly be worse ahead of the mid-term elections. And the rest of the world is hardly insulated. Higher US inflation keeps global interest rates elevated, strengthens the dollar structurally and tightens financial conditions across emerging markets. Countries already weakened by higher energy-import bills now face the additional burden of expensive dollar funding. America is rediscovering today is something markets repeatedly forget during long periods of stability: inflation is never truly dead. It simply waits for geopolitics to wake it up again.