Stagflation-Light

Inflation has cooled meaningfully from its 2022 peak, but Collin Crownover, PhD, FRM, and Jacob Weinstein, CFA®, of Fidelity's Asset Allocation Research Team argue the path back to low, stable inflation rarely stays smooth. Drawing on five historical energy-supply shocks since 1973, including the Arab Oil Embargo, the Iranian Revolution, and the 2022 Russia-Ukraine war, they show that geopolitically driven energy disruptions have lasted six months on average and have typically been followed by a second inflation wave roughly 18 months later. With Iran-related tensions elevating oil prices again in 2026, they expect CPI to climb toward 4 percent over the next 9 to 12 months, above the roughly 3 percent markets are currently pricing in.

Key Takeaways

1. Five past geopolitically driven energy shocks since 1973 lasted six months on average and cut GDP growth by 2.4 percentage points and raised core inflation by 1.5 points, on average.
2. Crownover and Weinstein expect CPI to rise toward 4 percent over the next 9 to 12 months, versus roughly 3 percent currently priced into inflation swaps.
3. More than 60 percent of the inflation indicators they track point toward higher inflation; fewer than 10 percent point clearly toward lower.
4. A sustained $100 oil price would add an estimated 0.7 percentage points to core CPI and 1.3 points to headline CPI.