What's Happening With Inflation?

📆This Week’s Topic

This week we’ll be talking about inflation. With the US-Iran war underway and all the economic qualms that come with that, how will inflation change, and how will those changes affect consumers not only now, but in the future?

💳 Cause & Effect

Across the world, economists and policymakers are concerned with the US’s ongoing war with Iran. Banks across the world are holding steady interest rates, with the threat of rising inflation due the rise of oil, gas, and other raw materials due in part to the closing of the Straight of Hormuz. However, in the US, inflation has stayed around the same as it was this time last year.

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📊 Statistics

Energy prices have risen, specifically gas utilities and fuel oil, which have risen in price 3.1% and 11.1% respectively. Transportation costs have risen, airline fares having climbed 1.4%. However, across the board inflation has only risen 0.3%, and 0.2% with the exclusion of energy. The price or a barrel of oil rose to almost $120, before falling to $93, which is still a steep rise from from the $65-70 range it sat at before the war. Food prices have risen, but not by a lot(on average by 0.3%), but other sectors affected by tariffs such as goods, apparel, and furniture have continued to climb. However from this time last year, energy prices have risen 7.1%, the sectors affected by tariffs have climbed by around 2.5% since last year, and food prices have risen around 3% since last year. House pricing has risen about 3% since last year. However, excluding energy, this rise is normal.

🔚 Outcome

However, the O.E.C.D has predicted G20 inflation to rise by 4% and US inflation to rise slighty more, at 4.2%. This hasn’t been enough to cause the Federal Reserve to raise interest rates, as well as the Bank of England, European Central Bank, and Bank of Japan. In the US and in England, interest rates have been held at around 3.75%, and while there are worries that inflation has been too high for too long, there is confidence it will return to both banks’ goal of 2% inflation rate.

⛱ Consumer Effect

But with the complications caused by the war in Iran, and the rise in energy prices and the still-high price of oil that is predicted to struggle to fall below $60 a barrel, the interest rate cuts proposed by both the Fed and the Bank of England will need to be backed by positive economic data, which might not come depending on the future of the war. Unemployment has risen slightly, and these factors have created stagflation, so the banks will find it difficult to fix the slow growth and the higher prices due to the inflation. Austan D. Goolsbee, president of the Federal Reserve Bank of Chicago, said “If the job market is getting worse and inflation is getting worse at the same time, it’s not obvious to me what the immediate response should be.”

🏢Business Effect

Contrary to the the rate cut traders saw coming just weeks ago, the hold on interest rates in England was also due to the uncertainty surrounding how much inflation will rise due to the economic shock that the war has caused. Now, traders think that banks in Europe will raise rates twice to counter inflation. In England, inflation is half a percent higher than predicted, and will stay half a point above the target for the next quarter. In greater Europe it’s predicted that the E.C.B will raise rates twice, while inflation is at 2.6% instead of the 1.9% goal.

⏳ Final Summary

The economy is facing confusion, with rising inflation coming via the US-Iran war, rising prices, and stagflation. Prices will likely rise for the average consumer, as the war has no clear end in the immediate future. Hopefully Central banks around the world find a way to manage the inflation, but time will tell.

🙏Thank You & Important Information

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Best,

Grayson Stein and Jacob Gans