The news: The ripple effects of the war in the Middle East continue to mount, even as fighting has paused following a memorandum of understanding.

The personal consumption expenditures (PCE) price index rose 4.1% YoY in May, the highest since April 2023, per the US Bureau of Economic Analysis. Even excluding volatile food and energy prices, core PCE increased 3.4% YoY, the highest since October 2023.

While there are signs inflation may have eased—oil prices have fallen roughly 16% MoM and the national average gas price has dropped about 13% MoM—the cumulative impact of higher prices will continue to weigh on many consumers, particularly after the post-pandemic inflation cycle.

Zooming in: The challenges ahead remain significant.

The disruption caused by the closure of the Strait of Hormuz cannot be reversed overnight. Peter Sand, chief analyst at Xeneta, recently wrote that container shipping networks are unlikely to fully recover until at least mid-September, with the disruption to roughly 10% of global capacity continuing to ripple through supply chains. De-mining operations, vessel repositioning, and network rebalancing are expected to keep capacity constrained and freight markets volatile even as the waterway reopens.

Even in a best-case scenario, Xeneta expects spot rates to keep rising for at least another four weeks before peaking, after already surging 192% on Asia–US West Coast routes, 158% to the US East Coast, and 106% into North Europe since the blockade began.

Some industries are already feeling the impact.

• Global food prices are near their highest levels in more than three years, as fuel and fertilizer shipment disruptions have driven up the cost of key agricultural inputs, per Bloomberg. Higher production costs are pushing up prices for staples like corn and rice, while producers warn that yields could decline.
• Plastics supply shortages are driving up packaging costs, with some companies beginning to pass those increases on to consumers.

Implications for retailers and brands: Even as household spending on gas, groceries, and home improvements continues to rise, there are signs of resilience. Personal income and disposable income each rose 0.7% MoM, helping fuel a 0.3% increase in inflation-adjusted spending (after being flat in April). That dovetails with a recent Bank of America Institute report showing total card spending jumped 5.1% YoY in May, the strongest growth in nearly four years. Excluding elevated gas prices, spending was still up 3.9%.

While it is difficult to generalize, those gains were broad-based: Card spending rose 4.1% YoY for lower-income households, 4.3% for middle-income households, and 5.4% for higher-income households.