We’re writing stories about inflation again. What is this, 2023?
What happened: After the U.S. and Iran traded strikes earlier this week, President Donald Trump told reporters that their interim ceasefire deal was “over.” He also said the U.S. was preparing more attacks and could potentially reinstate the naval blockade on Iranian ports.
Last week, voyages through the contested Strait of Hormuz more than quadrupled — a sign of confidence in the ceasefire. It looks like that confidence was misplaced.
Zoom out: In an unfortunately timed release, the International Monetary Fund (IMF) dropped its updated World Economic Outlook yesterday, which warned that “Re-escalation of geopolitical tensions would hurt growth and compound inflationary pressures.” Uh-oh!
The report projected global inflation would rise to 4.7% this year; even though it was calculated before Trump reignited the war, it’s still higher than the last reading.
Why it matters: The war’s energy shocks have lifted global inflation, though it has remained manageable. But if the conflict drags on, inflation could reach a tipping point and we could return to a brutal landscape of elevated prices. As is, Canada hit its highest annual inflation since 2024 in May and inflation expectations among business owners have spiked.
“The disinflation trend that we’ve been seeing since early 2024 has stalled,” the IMF’s deputy director of research told the Financial Times. “The global economy has done better than feared . . . [but] the news on inflation is maybe less encouraging.”
Our take: One must always take Trump’s decrees with a boulder-sized grain of salt, but his calling Iranians “scum” and saying it’s a “waste of time dealing with them” does not inspire confidence in a long-term peace deal, and thus doesn’t inspire economic confidence.—QH
