Could the world be heading for a repeat of the stagflation of the 1970s?
Fifty years ago, inflation remained stickily over target, industrial action gripped countries such as the UK, energy prices spiked, and there was war in the Middle East.
And today, analysts at Deutsche Bank see certain comparisons. In a research note out this week, Deutsche’s Henry Allen and Cassidy Ainsworth-Grace there are a “striking number of parallels” between the 1970s and our own time
They write: "Inflation remains above target across the major economies; we have witnessed severe spikes in energy prices over recent years; and there’s been growing industrial unrest.
"Over the weekend, the attacks on Israel showed how geopolitical risk can return unexpectedly. And we are also seeing an El Niño event this year, which echoes a similar event in the early 1970s that put upward pressure on food prices."
The biggest single cause of the stagflation of the 70s was the oil shock, when the OAPEC group imposed an oil embargo during the Yom Kippur war.
It sent much of the western world into recession, and it took many years before price stability returned, Deutsche point out.
Although oil jumped yesterday, after the Israel-Hamas war began, crude prices are still below the $100/barrel mark.
Recent interest rate increases, and the easing of supply chain bottlenecks, could also cool inflation.
But, Allen and Ainsworth-Grace say, there are “very strong” reasons for caution, and to avoid complacency: "Inflation is still above target in every G7 country, and the 1970s showed how unexpected shocks could rapidly send inflation higher once again. History also suggests that the last phase of returning inflation to target is the hardest.
"And given inflation has already been above target for the last two years, a fresh inflationary spike could well lead expectations to become unanchored."
Also today, we’ll hear the International Monetary Fund’s view on the global economy this morning, when it releases the latest World Economic Outlook.
European stock markets are set to open higher, with the FTSE 100 forecast to rise by about 50 points or 0.75% to 7541 points.
And there’s a recovery in the bond market, with the yield on US Treasuries falling sharply in early trading.
The agenda • 8am BST: Kantar’s grocery inflation report • 9am BST: IMF will release the World Economic Outlook (WEO) • 9.30am BST: ONS report: The role of labour costs and profits in UK inflation • 11am BST: NFIB index of US business optimism
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