The war with Iran increases living costs for Americans, and according to a new report from the Congressional Budget Office, borrowing costs may also rise. This report, released on Tuesday, indicates that the war is responsible for over one-third of the increase in the inflation rate this year, and this trend will continue into the first quarter of next year.
Impact of War on Inflation
The Congressional Budget Office specifically attributes the war to over 40 percent of the increase in the inflation rate in the second quarter of 2026 and estimates that this war will cause a half percent increase in the inflation rate in the first quarter of 2027. With rising inflation rates, interest rates are also likely to increase, which will lead to higher borrowing costs.
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Factors Contributing to Rising Costs
The main factors driving inflation include reduced transportation of oil and natural gas through the Strait of Hormuz and the Red Sea. This issue has particularly impacted the energy market, leading to increased energy costs for American consumers. Additionally, the report from the Congressional Budget Office indicates that the war has caused a shortage of ammunition in the United States and created a "bottleneck" in supply chains.
The report also predicts that it will take about five years for the U.S. Department of Defense to replace the ammunition used in this war, which is estimated to reach around $38 billion by August 1. This estimate does not include the costs of repairing damage to "hundreds of buildings and structures at American bases" in the Middle East.
The Department of Defense has not responded to the Congressional Budget Office's requests for cooperation, and the White House also did not immediately respond to a request for comment. One reason for the inability to estimate the costs of damage at military bases and other regional facilities is that the Department of Defense has not provided the Congressional Budget Office with information about the value of damaged or destroyed equipment and its repair plans.
Senator Elizabeth Warren, a Democratic representative from Massachusetts, has called for an end to the war in a written statement, describing it as "a blow to the pockets of Americans and a negative impact on our military readiness." Estimates indicate that replacing missile defense systems alone will require an expenditure of $13.1 billion, and the total cost of replacing the ammunition used by August 1 will be about $21.7 billion.
The report also notes that maintaining the current state of the war will require spending about $2 to $3 billion each month, and this cost will increase if the conflict escalates.
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