Iran War Triggers 1970s-Style Stagflation Fears as Oil Surges 70% This Year

Fifty years after energy disruptions sent inflation surging and crushed global growth, investors are once again confronting a stagflationary shock. Brent crude vaulted above $100 a barrel on Monday and has been up 70% since the start of the year, while European wholesale gas prices hit their highest level in over three years. The IMF estimates every persistent 10% rise in oil prices cuts global economic output by 0.1–0.2%, and oil price surges contributed to U.S. recessions in 1973, 1980, 1990, and 2008. Central banks now face a painful choice between raising rates to fight inflation or protecting growth. Markets currently price at least one European Central Bank rate hike this year, compared to a 40% chance of a cut before the war, while the Bank of England also faces hike expectations. A 5% rise in oil prices adds roughly 0.1 percentage points to inflation in developed markets, according to Capital Economics.