Global inflation dynamics are undergoing a significant shift, with fresh CPI data, central bank decisions, and energy market turbulence collectively redrawing the economic outlook — and disruptions stemming from the ongoing Middle East conflict emerging as a central risk, according to analysis from LSEG Data & Analytics.
CPI trends and central bank stances
Inflation has dominated global economic discourse for much of the past four years, fuelled by supply chain breakdowns and repeated energy shocks. Recent CPI releases across major Western economies point to a broad moderation in price growth, with both the ECB and the BoE holding interest rates steady. However, the backdrop diverges considerably between the two blocs.
In the UK, CPI rose 3.4% year-on-year as of December 2025, with the BoE revising its 2026 growth forecast down from 1.2% to 0.9% and its unemployment projection up from 5% to 5.3%. After peaking at 11.1% in October 2022, UK inflation fell to the BoE’s 2% target by May 2024, before picking up again in 2025 on the back of higher energy and food prices. The BoE now anticipates a return to its 2% target by Q2 2026.
The Middle East conflict: a renewed inflation shock
Despite the early-2026 disinflationary trend, the Middle East conflict has materially altered the outlook, as highlighted by LSEG Data & Analytics.
Disruptions to oil supply routes have driven sharp price increases, raising the spectre of renewed global inflation. In 2025, approximately 13 million barrels of oil transited the Strait of Hormuz daily — around 31% of all seaborne crude flows — while roughly 20% of global LNG shipments from the Persian Gulf are also at risk, it said.
East Asian economies are particularly exposed, with the region supplying 75% of Japan’s oil imports and 70% of South Korea’s. In Europe, several countries including Italy, Greece, Spain, Poland, and Belgium rely on flows through the Strait, and while outright shortages are not the base case, sustained price increases look increasingly probable.
Financial market response
Financial markets have responded swiftly. The US dollar has strengthened on safe-haven demand, though US Treasury yields rose — rather than fell — following the air strikes, driven by inflation concerns and stronger-than-expected economic data, it said. The ADP National Employment report logged 63,000 new private-sector jobs in February, ahead of the Reuters consensus of 48,000, while manufacturing PMI reached 52.4 and services PMI climbed to 56.1. However, Friday’s official employment report was more cautious, with nonfarm payrolls falling 92,000 and private payrolls declining 86,000.
Elevated energy prices reduce the likelihood of near-term Federal Reserve rate cuts, even as emerging labour market softness suggests easing may eventually be needed, LSEG said. The dollar’s strength against emerging-market currencies adds further difficulty for energy-import-dependent economies.
For more insights, read the full story here.
Copyright © 2026 FinTech Global
