Middle East ceasefire: impact on food inflation forecasts

Announcement of a two-week ceasefire between the US and Iran has eased immediate fears of further escalation of conflict in the Middle East.

Traders have responded with some relief, particularly across energy markets, where oil and gas prices have fallen. However, for the food and grocery industry, this pause does not - yet - represent an improvement in the inflation outlook.

This briefing sets out what has changed, what has not, and how IGD is thinking about the implications for food inflation in 2026.

What has changed

The ceasefire marks a temporary hold in geopolitical events, following six weeks of conflict that disrupted energy markets, impacted supply chains and undermined confidence.

Following the announcement:

Oil prices fell sharply as the conflict risk premium partially unwound, with Brent crude down by around 15%, moving back into the low US$90s per barrel, and daily price swings moderating.

This reflects expectations of at least a partial reopening of the Strait of Hormuz and improved near-term shipping conditions. Options pricing and headline futures markets suggest a lower likelihood of an immediate re-escalation.

However, prices remain well above pre-conflict levels, and the risk of renewed volatility remains high. Energy prices could re-spike quickly if the ceasefire breaks down or if disruption to energy production or transport resumes.

What has not changed

Despite this initial market response, underlying geopolitical risks remain elevated – conflict could potentially restart if no lasting political deal can be struck.

A lot will depend on the ability or willingness of the Iranian government to actually deliver peace in an area with central control weakened and arms readily available.

The attitude of oil and gas shipping businesses will also be key – they may need a lot of reassurance before returning to business as usual.

Sustained higher energy costs would still pose a material risk to the food inflation outlook, particularly if it persists long enough for hedging arrangements to unwind and contracts to reset.

From a food industry perspective, it is duration rather than day-to-day price moves that matters most for cost pass-through.

Implications for energy, fuel and freight

Energy remains the principal transmission channel from geopolitical risk into the food system.

While the ceasefire reduces the probability of further immediate price spikes, it does not unwind:

• Recent increases in wholesale oil and gas prices

• Higher fuel costs already locked into supply contracts

• Elevated freight and logistics costs

Fuel prices at the pump have already risen, and these increases have fed through into transport, logistics and parts of the food supply chain. A short ceasefire may slow further upward pressure, but does not reverse costs already incurred.

Business planners should also consider other wildcard risks to the food supply chain in 2026, especially extreme Summer weather, which is always a possibility.

Impact on food inflation forecasts

Are IGD’s forecasts changing?

At this stage, IGD is not revising its food inflation forecasts.

A two-week ceasefire is too short and uncertain to justify a material forecast update. Instead, existing IGD scenarios remain the most appropriate framework for understanding risk.

Restatement of IGD’s current food inflation forecasts

• Baseline (no additional conflict shock): average food inflation of ~3.8% in 2026 (and ~3.0% in 2027)

IGD has developed two illustrative inflation scenarios. These are structured assessments designed to show how food inflation might respond under different energy price shocks.

Both scenarios assume that the conflict is relatively short lived, followed by a return towards more normal market conditions.

Scenario 1: Short, moderate energy price shock

• Oil prices rise by around 50% (moving to US$105pb)

• Gas prices rise by around 63% (moving to 4.85 ppkwh)

• Disruption lasts around three months, followed by a relatively quick return towards long run averages

Scenario 2: Short, intense energy price shock

• Oil prices rise by around 150% (moving to US$140pb)

• Gas prices rise by around 250% (moving to 10.45 ppkwh)

• Disruption lasts up to three months, followed by a return towards long-run averages

Scenario 1 update: where are we now? (8 April 2026)

• Conflict Duration: Scenario 1 assumed a three month period of disruption. If the conflict were to end today, it would have lasted around six weeks, or roughly half of the assumed duration.

• Oil price: Energy prices have eased from their recent peaks but remain elevated. Brent crude is trading at around US$94 per barrel, below the US$105pb assumed in Scenario 1, reflecting a partial unwinding of the conflict risk premium.

• Gas price: UK wholesale gas prices are currently around 4.0–4.5p per kWh, slightly below the 4.85p/kWh assumption.

While price levels are now lower than the upper end of Scenario 1, the shock has already persisted long enough to create at least some inflation above baseline. Even with a halt to the conflict, elevated and volatile energy prices could still feed through into food costs as contracts reset and hedging arrangements unwind.

The forecasts above remain the best summary of IGD’s view: even if escalation risks ease temporarily, the baseline outlook is still for elevated inflation in 2026, while energy-driven shocks could add ~1.0–2.6 percentage points to the annual average.

What may change, if the ceasefire holds or is extended, is the timing of inflationary pressure, rather than its scale.

How the ceasefire affects risk, not outcomes

The ceasefire:

• Reduces the likelihood of near-term escalation.

• Lowers the probability of the most severe downside scenarios.

• Does not remove the risk of higher costs feeding through later in 2026.

Food inflation remains exposed to:

• Energy and fuel costs.

• Fertiliser and input prices.

• Freight and logistics constraints.

• Low margins limiting the ability of businesses to absorb shocks.

As with previous energy-driven shocks, pass-through to food prices tends to be lagged. A pause in escalation today does not eliminate the risk of pressure emerging later in the year.

What to watch next

The ceasefire reduces immediate risk, but does not mark the end of uncertainty. Key watchpoints include:

• Whether the ceasefire is extended or breaks down.

• Energy price behaviour as contracts renew.

• Shipping and insurance confidence in key routes.

• Fertiliser and agricultural input pricing.

• Shopper confidence and trust measures.

The interaction between energy markets, household confidence and food prices will remain central to the outlook.

IGD opinion

The ceasefire is a positive development, but it should be seen as a pause, not a resolution.

For now:

• The risk of immediate further escalation has eased.

• The underlying food inflation outlook remains unchanged.

• Timing risk may have shifted, but cost pressures have not disappeared.

IGD will continue to monitor developments closely and will update its forecasts only once there is clearer evidence of sustained stability in energy markets.