Iran war expected to cause a spike in US inflation, according to budget watchdog

By Annie Grayer, CNN

(CNN) — The US war with Iran is expected to increase inflation for the first quarter of 2027, raising costs at a time Americans are growing more concerned about the economy, according to an analysis by the Congressional Budget Office released Tuesday,

The CBO expects the Iran war to add roughly 0.5 percentage points to inflation during that period, a calculation that is largely driven by higher energy costs due to the conflict.

On top of the impact on the US economy, the CBO estimates the war has cost approximately $38 billion through August 1. The estimate does not include the cost to repair US facilities damaged during the war, with most of the price tag coming from munitions expenditures, according to a letter shared with Congress.

“CBO estimates that the cost to replace the munitions expended through August 1, 2026, is $21.7 billion: $7.3 billion for the land-attack cruise missiles, $13.1 billion for the missile defense interceptors, and $1.2 billion for other munitions,” the letter said. “Replacing those munitions has been the largest single component of the costs incurred by DoD during the conflict, CBO estimates.”

The CBO estimates the war will continue to cost the US approximately $2 billion to $3 billion per month past August 1, with higher costs estimated during periods of escalated fighting.

But the CBO said it would not provide a full accounting of the war’s cost as requested by lawmakers given limitations in available data.

“The estimates that CBO was asked to produce for each category of costs are the result of separate analyses that reflect disparate data, methods, time periods, and magnitudes of uncertainty,” the office said. “Thus, the estimates for each category are not directly comparable or summable.”

The CBO estimate closely tracks what the Pentagon has told Congress, with Defense Secretary Pete Hegseth putting the cost at $37.5 billion through July 21 during testimony before the Senate Armed Services Committee. The Defense Department’s estimates similarly do not include the cost of repairing facilities. In some cases, the US government may simply decline to rebuild assets that were severely damaged or destroyed by Iranian attacks — in part due to cost considerations, sources previously told CNN.

Pentagon officials have publicly refused to say what they might rebuild and declined to respond to CBO’s request for information.

Pentagon comptroller Jules “Jay” Hurst III told reporters in April it was not clear how much it would cost to repair bases and facilities damaged in the war, “and part of it is we would assess what our posture should be in the Middle East.”

Hurst later added that the Pentagon does not “have a final number for what the damage is to our installations overseas,” and it depends “on how we decide to rebuild those, or if we do.”

The CBO also conducted an analysis of US stockpiles, and found that the war has significantly depleted munitions, including interceptor stockpiles. That assessment matches a Pentagon inspector general report released Monday that described a critical missile shortage.

Experts warn this could reduce the military’s capacity to respond to another major conflict. Rebuilding the US stockpile could take five years or longer, the CBO reported.

The CBO released these estimates in response to a request from House Democrats on the Budget Committee who have pressed for specifics on how much the US-Iran war is costing.

“Donald Trump’s disastrous war in Iran has already taken the lives of brave American servicemembers and left others wounded. Beyond that human toll, this nonpartisan CBO report makes clear that the war has also cost American taxpayers tens of billions of dollars and counting, while continuing to drive up costs,” Democratic Rep. Brendan Boyle, the committee’s ranking member, said in a statement to CNN.

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