Inflation Isn’t Done, And a Global Supply Shock Could Make It Worse
Markets can’t afford to ignore this morning’s January PCE data. The Fed’s preferred inflation gauge tells the story: Core PCE climbed 0.4% for the month and is hovering around 2.9–3.0% YoY, still well above target. Headline PCE is right there too, at about 2.9%. The era of easy disinflation looks over.
But the real story is in the details. Personal income rose 0.5% in January, but consumer spending lagged at just 0.3%. Job openings are drying up. That gap matters: wages are rising, but inflation is eating away purchasing power. Households are earning more, but feeling less able to spend.
Zoom out, and the economic slowdown is clear: Q4 GDP growth collapsed to 1.4%, down from 4.4% in Q3. Consumer spending, the main growth engine, is sputtering. And early cracks are showing in the labor market.
Now, layer in the risk of a global supply shock. The Persian Gulf is the world’s energy heart, producing $1.2–$1.7 trillion a year in oil and petrochemicals. This region supplies a quarter of global oil, with 20% moving through the Strait of Hormuz. Even a modest disruption of 8–10 million barrels a day could push energy prices sharply higher.
These shocks don’t stay in the energy sector. They ripple through gas prices, shipping, food, manufacturing, and ultimately, every household budget in America. Nearly 80% of U.S. households would feel the hit if energy prices spike and stay there: real wage growth stalls, everyday costs outpace incomes, and affordability gets squeezed.
That’s the stagflation risk in plain sight: slower growth, stubborn inflation, and demand destruction, not because prices fall, but because families can’t keep up.
The next few months will test the Fed and the resilience of American households. The big question isn’t whether inflation will drop, it’s whether the global economy can take another energy shock without sliding into stagflation.
#PCE #Inflation #Macroeconomics #EnergyMarkets #OilPrices #FederalReserve #GlobalEconomy #Stagflation #NedGandevani
