The Iran war's economic fallout is poised to deliver a second wave of inflation that will hit more than just gas prices, reshaping the American household budget. Groceries, personal care products, and household essentials are among the items expected to see significant price increases in the coming months.
Petrochemicals Drive Rising Costs
Mark Malek, CIO of Siebert Financial, warned that the initial inflationary pressures on gas prices are just the beginning. 'The gas pump is only the opening act. The real household inflation hit comes later, hidden inside everyday products,' he said. Petrochemicals, derived from oil and natural gas, are the foundation of plastics and other synthetic materials, which make up a $5 trillion global market. These chemicals are found in over 95% of finished products worldwide.
'The second wave of inflation arrives with a lag. It shows up gradually in groceries, trash bags, prescriptions, airfare, and tighter monthly budgets,' Malek explained.
Groceries and Packaging Costs to Climb
Grocery shopping is set to become more expensive due to both food prices and packaging costs. Malek noted that nearly everything in a shopping cart arrives in plastic packaging. Polymer prices for resins used in food packaging have surged and are expected to keep climbing through mid-year. Goldman Sachs estimates a 3% increase in the cost of goods sold for food and a 4% rise for beverages, which will take three to nine months to fully materialize.
Beyond plastic, aluminum prices have also surged due to supply disruptions, making canned foods and beverages more expensive. The war’s impact on fertilizer supply chains, exacerbated by the Strait of Hormuz blockage, will further fuel food inflation, though this effect will be delayed as it impacts the current spring planting season.
Personal Care and Household Products
Personal care and household products, heavily reliant on plastic packaging, are expected to see even sharper price hikes. Malek predicts a 3% to 4% increase in costs for items like laundry detergent, cleaning products, and paper towels. Trash bags, which have few alternatives to plastic, are likely to see the most significant price jumps. Goldman Sachs projects an 18% increase in the cost of goods sold for personal care items over the next three to nine months.
The timing of these increases, spread out over time, could mask their cumulative impact. 'Each one, in isolation, feels manageable. Together, they represent a structural repricing of the American household budget,' Malek cautioned.