XLU - Stagflation In 2024? Red Sea Crisis Could Trigger Domino Effect For Global Costs | Benzinga
Could stagflation be the story of 2024 as tensions in the Middle East and the Red Sea escalate? After a U.S.-led coalition conducted airstrikes against Houthi rebels in Yemen this week, the stakes are raised — as are the risks of inflation remaining stubbornly high.
Stagflation is the emergence of rising inflation during an economic downturn — it’s not common, as weak demand during a downturn usually draws prices lower.
But it is a dreaded phenomenon for policymakers, as it leaves them hamstrung to act. If they raise interest rates, they risk further damage to an already weak economy and if they cut to help bolster the economy, the risk is further inflation.
What Are The Current Risks?
The economy is expected to slow in 2024. Purchasing manager surveys are already showing signs of slowing activity in manufacturing industries as inflation and higher interest rates cooled demand for consumer goods.
While inflation has eased in recent months — the December consumer price index report this week showed inflation rose again in the final month of 2023.
Analysts at Schroders are now considering whether the events unfolding in the Middle East could be inflationary as goods, no longer moving through the Red Sea and Suez Canal, are diverted around Africa — a much longer route that is adding to shipping costs.
In recent ...