US Grocery 2026: What the US–Iran Conflict Means for Your P&L

Oil is spiking, geopolitical risk is everywhere — and yet US grocery sales in 2026 are shaping up to be quite boring. Here's what the data says, and where it gets interesting.

The Forecast

I've been tracking the relationship between oil prices and food inflation across past shocks — the Gulf War, the Great Recession, Covid — and modeling what the current US–Iran conflict implies for grocery economics. For the first two episodes oil spiked hard for roughly four months, then came back down. Goldman Sachs is expecting Q4 oil prices to drop back to $67 a barrel, which puts this conflict on a similar trajectory. My model assumes oil averages $93 a barrel through June 2026, then tapers to $65 by year end.

That oil path translates into about a 2.0% Consumer Price Index Food at Home (CPI FAH) — the standard measure of grocery price inflation — and a -0.2% decrease in units. Net result: US Grocery Sales up roughly 1.8% for 2026. My previous CPI FAH forecast (Feb 10th - https://www.derivzero.com/post/food-inflation-or-deflation), which was before the conflict, was 1.6% so the current oil spike is pushing up food inflation by about a half of percent.

The chart tells a story that's easy to miss if you're only looking at the current year. From 2016 through 2019, grocery prices were flat to negative — CPI FAH went through a deflationary stretch before settling into slow growth in 2018–19. That soft price environment pushed unit growth well above the long-run trend of around 1%. Consumers bought more when things cost less. Not a surprising dynamic, but the magnitude mattered. There was enough growth to "go around" which helped to buffer competitive intensity.

Then Covid hit and the whole relationship inverted. Supply chain failures, the war in Ukraine, and government stimulus pushed food inflation above 11%. When people pay 11% more, they buy fewer units — that's what drove the negative unit volumes in 2022 and 2023. What's less appreciated is that 2024 and 2025 were weak on units not because of new pressure, but because of the hangover from the extraordinary volume surge in 2020 and 2021. September 2025 unit volumes are still 5% below where they were in September 2021. That gap hasn't closed.

On price, 2025 appears to have returned to the long-run CPI FAH trend of around 2%, and I expect 2026 to stay on that path — assuming the US–Iran conflict stays short. The price environment is normal. The units environment is not.

What This Means for Retailers

A 1.8% sales gain is OK on paper. But the long-run trend for US grocery sales is closer to 3%, so we're running below baseline — and the reason is entirely the soft unit picture which is likely to continue in future years.

Stimulus is long gone, and grocery prices are up roughly 30% since Covid. That cumulative increase has changed how people shop — they're more price-sensitive than they were in 2019. It's not a surprise that Walmart, Target, Amazon, Kroger, Aldi, Ahold Delhaize, and Walgreens have all announced price reductions on thousands of SKUs. When volumes are weak and consumers are stretched, price and promotion become the primary lever. In the post Covid market, retailers are scrambling to maintain volumes. Competitive intensity is up and room for error is down.

With soft units likely over the next couple of years, inventories and shrink play an increasingly important role. Managing inventory levels with better forecasting and planning capabilities will likely become more important. The cost savings can then be reinvested in price and provide retailers, particularly regionals, a better chance at competing. Unlike there early 2000's where the industry pushed for quality, perishables, and a better shopping experience, the rest of this decade will likely be shaped by efficiency, cost savings, and a focus on lower prices.

One more complication worth flagging: the first half of 2026 is expected to be stronger than the second. If oil prices do behave as Goldman expects and start coming down, CPI FAH tailwinds could fade while units remain soft. That's the setup for an aggressive holiday season.

derivzero  ·  erickarlson@derivzero.com  ·  www.derivzero.com