The Roundup – May 2026
Alternate Measures Drying Up
At the time of writing, a new agreement to end the war in the Middle East appears to be in place; however, the economic impacts of the damage to energy infrastructure and the blockage of key export channels in the region, particularly the Strait of Hormuz, continue to trickle through to the global economy.
US Energy Information Administration data showed a 6 million-barrel drop in gasoline stockpiles, as inventories have been drawn on to fill the supply gaps being felt by other countries following the reduction of exports from the Gulf region. Similarly other countries such as China have also been drawing on their reserves to mitigate the reduced imports.
While the short-term nature of the alternative measures (inventory withdrawals and lifting sanctions) has helped to partially offset the impacts from the supply squeeze, projections are for these to be depleted by mid-year. Meaning the full economic effects are potentially yet to come, with Economists projecting the cost will be more prominent in Q2.
Over the month, bond markets reacted to the developments of the conflict accordingly, yields accelerated to multi-decade highs as inflation appeared more persistent, while the prospect of progress around the peace talks saw them ease.
Spending Offset
US inflation continued to rise, reaching 3.8% in April following a +0.9% jump a month earlier, as both domestic factors such as shelter costs, and items influenced by events overseas including energy prices pushed up overall costs, undoing the progress in curbing inflation seen last year and the first few months of 2026.
Heightened global instability is adding to uncertainty for businesses, which has seen employers exercise caution in hiring new staff given the fluid backdrop and rising costs. Simultaneously they remain wary of trimming hours, however some signs point towards a potential structural shift with AI adoption and other emerging pressures at play.
With consumption accounting for over two thirds of activity, and a (for now) resilient labour market propping up consumer confidence, the US economic engine has been maintaining momentum. GDP for Q1 was 1.6%, buoyed by rapid and meaningful investment in artificial intelligence as well as a rebound in government spending following the shutdown last year.
While current events are testing businesses, the series of shocks affecting the wider global economy over the last few years (a pandemic, war in Europe, and fragmentation of trading relationships) has resulted in companies being more equipped to respond to new shocks through mechanisms such as inventory management and alternate supply chain sources.
For their part, equity markets which are forward-looking have generally moved on from the conflict, as the worst-case scenarios have not materialised and the ceasefire, while fragile has been inplace for a while. As such the focus has shifted towards earnings and investment, which have pushed stock higher to reach record valuations.
Pump Pain
The effects of the war are likely to have a broad range of impacts on the Kiwi economy. While GDP for Q1 was generally unaffected, growth for the second quarter is likely to be more influenced. In contrast, petrol and diesel prices increased sharply by 33.6% and 94.9% respectively over the two months from February, hitting both businesses and households.