Economic Costs of the War

Jared Bernstein

Senior Policy Fellow

CAP

4/2/26

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The economic costs of the war

• The human costs far surpass the economic costs
• We have a lot to say about the war’s toll on the US economy thus far and in the future, but the most profound cost of war is the human cost.

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Economic Costs:

• It starts with oil, but it doesn’t end there
• Gas, nat gas, food, other commodities
• Airfares (which, ftr, hit the core)
• Inflation, interest rates, mortgage rates, the Fed
• Macroeconomy: “demand destruction” and its impact on an already weak job market.

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• Affordability and Trump: Pushing hard in the wrong direction

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Hard to know where oil lands, but its option-implied distribution is revealing…(figure by Ryan Cummings)

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Fcasts: Inflation accel; nom wage decel.

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• Fuel accounts ⁠for about a quarter of airline operating costs, and airlines sell tickets weeks or months in advance, leaving them exposed when prices move faster than fares can follow.

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--Higher diesel prices; 80% of US food moved in trucks. Big distributors already adding surcharges.

--Fertilizer (a third transits the SoH); Quatar nat gas production way down.

--In India, Algeria and Slovakia, fertilizer plants have reduced production or stopped operations because of rising natural gas prices.

--Australian wheat farmers are planting less, and China has restricted fertilizer exports. (NBC News)

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Putting it all together…

• Families already stressed by affordability concerns now face higher costs.
• Higher inflation will reduce their buying power. GS: “Spending headwinds from higher inflation due to the recent energy price surge are likely to weigh on spending growth for the rest of the year.”
• “…we now forecast growth of just 0.4% among households in the bottom income quintile.”
• These costs don’t snap back; rockets/feathers.
• The war is but one cost to families from Trump’s agenda.

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