The economic repercussions of the war on Iran could haunt US President Donald Trump and his Republican Party and hurt them in the Midterms even if the conflict ends this month. While analyses that emphasize how the American economy is better placed than others to absorb energy price shocks are not wrong, they focus on the “macro” level and overlook a crucial dimension of the issue: how voters’ incomes and consumption will be impacted.
The macro analysis is correct. The US economy is less dependent on oil than others, meaning the direct inflationary impact of the war may be limited, reducing the need to raise interest rates and the impact of rising prices on growth. However, that does not give us the full picture, as it does not address the gap between aggregate indicators and how the impact is felt by ordinary citizens.
To clarify the difference, we must first distinguish between the inflation rate and prices. The inflation rate is essentially the “average increase in prices.” A decline in inflation does not mean that the goods and services we buy have become cheaper; it simply means their prices are rising more slowly.
Here lies the crux of the issue: after the COVID-19 pandemic, inflation in the US rose at rates that had not been seen since the late 1970s. Between 2021 and February of this year, prices paid by consumers in the United States rose by about 25 percent, and this rise was matched by a similar increase in wages.
For most American households, this means that (at best) families are struggling to stay in place, with no meaningful improvement to their standard of living, and this was shown in recent surveys cited in an analysis published by the Brookings Institution in Washington.
It is also important to note that increases in prices and wages reflect averages. Once we break down the number, we find sharper increases in goods and services that make up much of American consumer spending, such as housing, healthcare, and everyday shopping.
This may also explain the sharp decline in the consumer confidence index issued by the University of Michigan, which collapsed at the beginning of this month to its lowest level since its launch in 1952. The American consumer does not see the war as a new price shock, but rather as an extension of a series of blows endured over the past five years.
That is why the “cost of living crisis” dominated the political discourse of the United States on the eve of the war despite President Trump’s efforts to downplay the issue during his State of the Union address. Rising prices also played a role in the emphatic defeat of the Democrats in the 2024 presidential election against Trump, which they lost despite rising wages and employment under former President Joe Biden.
The labor market is not in great shape either. According to US government data, last year’s employment rate was the lowest since 2003 (outside recession years). What about wages? A report by Bank of America indicates that net incomes of low-income households grew less than 1 percent in 2025, compared to 1.6 percent for middle-income groups and 3.7 percent for higher-income brackets.
Some economists argue that the scale of the gap between higher- and lower-income groups means that the wealthy (or at least higher income) households are the driving force behind US consumer spending. That is why they do not rule out solid economic growth driven by gains in the oil and gas sector this year. The inflationary impact may also remain limited compared to other countries, meaning the Federal Reserve might not move to raise interest rates.
Yet, none of that means the American consumer will not come under increased pressure as the cost of living rises. The problem, for politicians, is that the consumer becomes a voter on election day, and at the ballot box, the votes of the wealthy do not count any more than those of anyone else.
