While President Trump managed to calm markets somewhat this week by saying the U.S. and Israel’s war with Iran is “very complete, pretty much,” those assurances from the Oval Office will likely do little to unwind the hawkish stances of the world’s central banks.
The conflict in the Middle East sent oil prices spiralling to more than $100 a barrel over the weekend, with consumers in the Western world panic-buying supplies. Oil and energy prices are a key factor in inflation expectations for households, and the reality of any price surges in the commodity increases readings for core inflation data.
This is the concern of a central bank, many of which are mandated to keep prices stable. In countries like the U.S., the Fed even has an inflation target of 2% to maintain. Already, sticky inflation is ahead of where the Federal Reserve would like to be: The latest CPI reading from the Bureau of Labor Statistics (BLS) was 2.4% over the past 12 months, with some categories, such as food and energy services, well above that level.
Any upward pressure impacting the finances of households and businesses will work against calls for a lower base rate—an argument President Trump and his cabinet have been making for the past year.
