Any time there is a new geopolitical conflict, like the one we are now seeing in the Middle East, the greatest concern is the risk is to human lives. A secondary, but important concern, is impact to the economy.

The largest economic impacts probably will be to inflation. Consumers are painfully aware that, in the past few years, we’ve had major factors that have meaningfully increased U.S. prices:

There was the pandemic with its disruption to supply chains.

We’ve had tariff-related increases in the past year.

And immigration has slowed, which has tightened the labor supply and pushed labor costs higher, particularly in sectors where immigrant workers make up a significant share of the workforce.

Together, the cumulative impacts bring us to average price levels that are about 30% higher than January 2020. One saving grace over the past 12 months has been that gas prices have fallen by about 8%. Had we not had those decreases, our current, roughly 2 1/2% inflation rate would be materially higher.

But now that may change with the new geopolitical situation. Even if impacts on gas prices are not that severe, moderate and even declining gasoline prices will no longer be working in our favor in terms of the overall inflation rate.

Last week, before the U.S.-Israel military intervention, two U.S. data points were released that indicate further price increases are ahead of us. The Producer Price Index, which reflects prices businesses pay and then pass onto us, shot up a half-percentage point in January. That index is now at 2.9%. This is before any increases in gasoline prices, which are a big part of the prices businesses pay to get goods to us.

Another indicator, the ISM Manufacturer’s Index, had a surprisingly large jump in the “prices paid” component reflecting the prices U.S. manufacturers pay for the inputs they need to provide goods and services to us. An index of 50 means prices paid neither increased nor decreased. In February, that index jumped to 70.5 — a surprisingly large jump from January’s (already high) index of 59 and the highest we’ve had since the pandemic.

Again, these producer cost increases have all shown up in the data before the geopolitical events that started over the weekend.

These events increase the probability that inflation will accelerate and that the Federal Reserve will hold on any interest rate cuts. For this and more grave reasons, let’s hope this is not a prolonged crisis.

Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies. Other Gazette articles, TV segments, DDES monthly economic dashboards with technical explanations, and how to sponsor their work can be found at ddestrategies.org.