MW A key inflation gauge just logged its highest reading in almost 4 years

By Vivien Lou Chen

Climbing expectations for future price gains are bad news for the Trump administration

Market-based expectations for near-term price gains were rising as of Thursday.

As the war in the Middle East deepened on Thursday, an important Wall Street gauge was reflecting the kind of inflation fears that the Trump administration would rather avoid before midterm elections.

President Donald Trump has touted his ability to make substantial progress on reversing inflation since assuming his second term in office in January 2025. But now that the war in the Middle East is creating the biggest-ever oil-supply disruption and Iran's new supreme leader expects to keep a key strait closed to shipping, market-based expectations for near-term price gains are inching closer to the average level of around 5% that prevailed during the Biden administration. Former President Joe Biden was widely criticized for allowing inflation to return to a 40-year high in 2022.

Read: Trump is tapping America's Strategic Petroleum Reserve to fight rising gasoline prices. How much oil is left in it now?

On Thursday, a gauge of expectations for inflation over the next year, known as the one-year break-even inflation rate, jumped to 4.62%, according to Bloomberg Data. That is the highest level since June 2022, when the annual rate of the consumer-price index peaked at 9.1%. The break-even rate has climbed from 3.97% on March 2, just days after the U.S. and Israel began to launch major airstrikes on Iran. The two-year breakeven rate rose to 3.18%, the highest since last April; that rate is up from 2.9% in early March.

One- and two-year break-even inflation rates have been rising ever since the war in Iran began.

The break-even rate aims to gauge the level of inflation at which an investment, such as owning bonds or Treasury inflation-protected securities, produces neither a gain nor a loss.

The rise in near-term inflation expectations presents a difficulty for investors who are in retirement, or close to retiring, and have been invested in 1-year BX:TMUBMUSD01Y and 2-year Treasurys BX:TMUBMUSD02Y because of their cash-like qualities, said Lawrence Gillum, the Charlotte, N.C.-based chief fixed-income strategist for broker-dealer LPL Financial. Prices on these maturities have fallen and their yields have climbed, which means investors could have gotten a higher rate by simply waiting before buying.

One- and two-year break-even inflation rates, which tend to be volatile and correlated to oil prices (CL00), "are certainly unanchored and showing that markets are still concerned about near-term inflation," Gillum said in a phone interview. The term "unanchored" refers to a situation in which expectations for future price gains are at risk of becoming persistent and self-fulfilling, creating a detrimental backdrop for economic stability.

Break-even inflation rates were rising across long-term time horizons as well. On Thursday, the five-year break-even rate, which reflects expectations for average inflation over the next five years, rose 5 basis points to 2.58%, according to FactSet. It jumped further above the 2.5% level that signals fear of a more sustained upside risk to inflation.

"Break evens are saying that the market thinks oil prices are going to stay high for at least a period of time," said Tom Graff, chief investment officer of Baltimore-based Facet, a financial advisory company. "It's not a situation where we spike to $100 and come back down to $75" a barrel on oil. "We're not talking about a situation that fades away quickly."

See: Oil tops $100 again as Iran ramps up strikes and new leader vows to keep blocking Strait of Hormuz

If high inflation gets in the way of the Federal Reserve's ability to cut interest rates from a current level of between 3.5% and 3.75%, "it's not amazing all the way around," including for stock investors, Graff added.

All three major U.S. stock indexes DJIA SPX COMP were retreating on Thursday as global Brent crude-oil prices (BRN00) rose back above the $100-a-barrel mark. Yields on everything from the 1-month Treasury bill BX:TMUBMUSD01M through the 30-year bond BX:TMUBMUSD30Y were rising, led by an 8-basis-point rise in both the policy-sensitive 2-year rate and the 3-year rate. The Fed's upcoming policy meeting is scheduled to be held next Tuesday and Wednesday.

-Vivien Lou Chen

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March 12, 2026 13:25 ET (17:25 GMT)

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