For most investors, earnings season is the pinnacle of each quarter. The six-week period where most S&P 500 (^GSPC +0.19%) companies lift the hood on their quarterly operating results provides insight into the health of corporate America and the sustainability of bull and bear markets on Wall Street.

But something even more important than earnings releases is slated for today, and it has the potential to rattle the Dow Jones Industrial Average (^DJI +0.19%), S&P 500, and Nasdaq Composite (^IXIC +0.10%). Investors, buckle up, because it’s inflation report day!

Inflation is rapidly picking up in the wake of the Iran war

According to outgoing Fed Chair Jerome Powell, whose final day as head of the Federal Reserve is this Friday, May 15, the U.S. economy is navigating two price shocks: President Donald Trump’s tariffs and the Iran war.

It’s been more than two months since Trump gave the U.S. military the green light to commence attacks against Iran. Since roughly Feb. 28, Iran has closed the Strait of Hormuz to virtually all commercial vessels. This stoppage has stymied approximately 20% of the world’s daily liquid petroleum supply — the largest energy supply disruption in modern history.

The most immediate impact of this war has been felt at the fuel pumps, where gas prices have jumped at their fastest pace in over 30 years. But this is likely just the tip of the iceberg.

Historically, the impact of energy price shocks on businesses lags by a couple of months. When higher transportation and production costs begin working their way into economic data, a second inflationary surge can often be identified.

In February, the U.S. Bureau of Labor Statistics (BLS) reported trailing 12-month inflation of 2.4%. One month later, the impact of the Iran war pushed the TTM Consumer Price Index (CPI) up 90 basis points to 3.3%.

According to estimates from the Federal Reserve Bank of Cleveland’s Inflation Nowcasting tool, the CPI is expected to jump by 26 basis points to 3.56% in April. The BLS will release the April inflation data at 08:30 a.m. ET, today (May 12).

Surging inflation may roil Wall Street

Although the Dow, S&P 500, and Nasdaq Composite have been resilient, shrugging off inflationary fears over the past six weeks, this optimism may prove fleeting.

A foundational aspect of this historically expensive stock market has been the expectation of future interest rate cuts. Between the price stickiness of President Trump’s tariffs and now the inflationary effects of the Iran war, the prospect of rate cuts in 2026 is gone.

More importantly, the Federal Open Market Committee (FOMC) — the 12-person body that sets the nation’s monetary policy — appears positioned to shift away from its easing bias and toward a neutral or hiking stance in the quarters to come. Though the probability of a rate hike at the next FOMC meeting remains very low, a hike appears more likely than a cut as the eventual next action.

Making borrowing costlier could slam the brakes on the artificial intelligence data center build-out that’s been driving excitement and powering the Dow, S&P 500, and Nasdaq higher. A lot is riding on the April inflation report, and it could definitely rattle Wall Street’s cage.