The Roundup – April 2026
Heading Strait into Stagflation?
The war in Iran and shipping conditions in the Strait of Hormuz continued to dominate investor attention in April as attempts to broker peace talks between the two sides were fraught with misunderstandings and obstacles, calling into question the likelihood of a lasting agreement holding in the long term.
Until the fighting concludes and the shipping route is fully operational, restoring the flow of oil and other goods from the region, the world economy will remain in a fuel supply squeeze. Limited alternate transport methods for energy exports have created a global shortfall, which has been driving up prices and hampering economic activity.
The US Energy Information Administration warned that oil prices could continue to rise for months even after the Strait of Hormuz has been cleared and shipments resumed. Oil prices continued to rise over April surpassing US$110/barrel, and drivers experienced accelerating prices at the pump.
Local consumer confidence data for the first quarter of 2026 provided an early gauge on how New Zealanders are feeling about the conflict-related impacts. Results showed the increase in the number of households feeling in a better financial position than last year was eclipsed by worries around current global events and the outlook for higher prices.
Similarly, US consumer data showed a sharp decline in confidence for March, while April reached a record low, demonstrating the oppressive effect the conflict with Iran is having on consumer morale. Business conditions over the long and short term also took a hit, while one-year inflation expectations surged to 4.7% from 3.8% a month earlier.
The oil supply squeeze and subsequent increase in prices flowed through to Central Bank discussions as the potential duration of the inflationary forces were considered. At the RBNZ’s April meeting, the Official Cash Rate (OCR) was left unchanged, but the Bank warned of increased rates if inflation remained persistent and expectations become unanchored.
When the US Federal Reserve met at the end of April, they noted developments in the Gulf region were contributing to increased levels of uncertainty around the economic outlook, and opted to leave policy rates unchanged, deeming the current monetary policy stance was appropriate to navigate the environment in the context of their dual mandate.
Meanwhile, the Reserve Bank of Australia lifted interest rates for the second time this year, as underlying inflation pressures lingered. Conflict-related effects compounded the situation, as Australia (an oil producer) generally doesn’t refine much of its product and therefore found itself urgently needing to source alternate supply to avoid shortages.
Rate setters at the European Central Bank were wary of inflation expectations lifting materially, given Europe’s recent experience of steep energy prices following Russia’s invasion of Ukraine. Worries were centered around businesses rapidly pushing up prices, and in turn setting off a self-fulfilling inflationary spiral which will be costly to reign in.
While there are nuances and differing degrees of impact across individual countries, the conflict in the Middle East has broadly had an inflationary effect on theglobal economy. The extent to which the consequence of slowing economic activity plays out will decide whether concerns around stagflation (a combination of high inflation and low growth) are warranted.
Stagflation, which is often accompanied by high levels of unemployment, is an unpleasant and (historically) challenging scenario for monetary policymakers to remedy with the tools they have available. As such, inflation expectations, which dictate consumer behaviour, are being tightly watched and Central Banks stand ready to act to avoid these rising materially.