The Trump administration’s decision to start a war with Iran has imposed disastrous costs—both economic and humanitarian—around the world. The U.S. has been more insulated from these costs than most other countries, yet even here they are extremely large. The war’s effect in pushing up U.S. energy prices has erased all the real (inflation-adjusted) wage gains workers have made during his second term.

According to today’s Consumer Price Index (CPI) release, overall inflation was 4.2% over the last year. The sudden burst in inflation, along with slowing nominal wage growth, means that the average hourly real wage for private-sector workers is now no higher than it was in January 2025.

So far, excessive inflation has been limited to energy and airfares. But as long as the war continues, there is a heightened threat that price increases will spill over to the broader economy, triggering a more permanent increase in the cost of living and further reductions in real earnings.