The coming inflation-deflation whipsaw
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Markets are facing both the immediate threat of higher inflation from geopolitical tensions and the longer-term risk of AI-driven deflation. The US-Israeli war against Iran has disrupted oil supplies, causing prices to rise and affecting the global economy.
The global economy is experiencing a rare moment with two powerful forces pulling prices in opposite directions. Geopolitical tensions, particularly the US-Israeli war against Iran, have disrupted oil supplies, causing prices to rise. Brent futures have breached $100, with some predicting prices as high as $150. This has affected not only oil and natural gas prices but also the broader commodity complex. The effects of the war are expected to be persistent, with rebuilding efforts taking up to five years. As a result, the OECD is forecasting 4.2 percent inflation in the US, above the Federal Reserve's 2 percent target.
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