As Donald Trump weighs up options, could inflation be about to get worse?

Reports that the US is planning further strikes on Iran – potentially after the US midterm elections next month – have triggered another surge in oil prices. Brent crude, the international benchmark for oil, rose to a five-month high of $114 (€102) a barrel on Friday.

US president Donald Trump is apparently being briefed on two possible options for ending the current deadlock. US Treasury Secretary Scott Bessent is said to be arguing that Iran is on the brink of economic collapse and that the US’s continuing blockade of the Strait of Hormuz combined with sanctions will soon force Tehran to cut a deal, one that is favourable to Washington.

At the same time, Israeli leader Binyamin Netanyahu is said to be trying to convince Trump that another round of even more devastating air strikes could topple the regime.

According to reports from inside the White House, Trump is said to be considering combining the two approaches: betting that an economically weak regime in Tehran could be pushed over the edge by more air strikes.

The political calculus in Washington aside, oil is now up nearly 60 per cent since the start of the war and around 90 per cent in the year so far.

Houthi attacks on Saudi energy facilities combined with Ukraine attacks on Russian diesel refineries are further adding to supply concerns.

The deteriorating geopolitical situation is fanning fears that inflation could be about to get a lot worse.

The European Central Bank (ECB) is expected to leave interest rates unchanged at 2.5 per cent when it meets next week.

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“With little evidence of second-round inflation effects, the Governing Council is unlikely to feel compelled to deliver consecutive rate hikes,” says Tom Pugh, chief economist with consulting firm RSM UK and Ireland.

“However, we expect the ECB to raise rates again in December, pushing policy modestly into restrictive territory.

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“Beyond that, the outlook will depend heavily on energy markets. If tensions ease and prices normalise, policymakers may pause.”

At the moment, tensions don’t seem to be easing and prices are spiralling up rather than normalising. All of which creates a very uncertain outlook.