Why oil shock could cool inflation amid consumer cutbacks
Oil prices spiked once again on Monday morning, rebounding above $100 a barrel after Middle East peace talks in Islamabad faltered and reigniting fears of another energy-driven inflationary surge through the global economy. But the lasting impact from the energy price shock caused by the U.S.-Iran conflict could actually prove to be disinflationary for developed economies, according to one fund manager. Will Hobbs, chief investment officer at Brooks Macdonald, said the global economy faces “a difficult moment” after Brent crude spiked almost 8% to reach $102.72, as West Texas Intermediate reached $104.55 a barrel on Monday. However, investors should be cautious about interpreting the rise in energy costs as a sustained driver of inflation, he added. “You’ve got worries in the short term about this energy hit, but so far I would be wary of calling this inflation. In fact, the impact is more likely to be disinflationary once you’re through the price hump,” Hobbs told CNBC’s “Europe Early Edition” on Monday. Energy costs soared after the Iran conflict began on Feb. 28. Despite easing following the 11 th hour ceasefire deal agreed April 7, prices have again ticked higher after U.S. President Donald Trump threatened to blockade the critical Strait of Hormuz shipping channel, further risking the already-fragile agreement. Markets have whipsawed since the hostilities began, fueling fears of a resurgence in inflation across western economies, causing investors to rapidly recalibrate their outlook on central bank interest rate policies. Hobbs said the resilience and adaptability of developed economies has been underpinned by strong consumer spending, supported by robust private-sector balance sheets and steady real wage growth, which he called a “positive tailwind.” Now, higher energy prices are likely to erode some of that spending power, prompting households to rein in consumption — thereby easing broader price pressures. @LCO.1 3M mountain Brent crude. “You would expect this relative price shock to soak up a little bit of that heat, that warmth,” Hobbs said. “That should ultimately mean a little bit less consumer spending, and therefore a little bit less inflationary pressure.” He also said the broader economic landscape is comprised of “a lot of moving parts,” notably including the disruptive impact of generative AI. Hobbs said such advances are shaping a productivity trend that’s “genuinely different from previous decades” — and could also help keep a lid on prices. “[Generative AI is] likely to prove a large disinflationary force over the long term,” he added. “That means for investors you’ve got a slightly more forgiving growth context in some ways, and the ability to absorb a little bit more inflationary pressure as we go along.”
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