MARKET NEWS

By Alun John, Dhara Ranasinghe and Sophie Kiderlin (Reuters)

LONDON, July 24 (Reuters) — Renewed hostilities in the Gulf have reignited concerns about stagflation, as rising oil prices, higher borrowing costs and escalating trade tensions threaten to combine elevated inflation with weak economic growth.

Brent crude has climbed back to around $100 per barrel after renewed attacks in the Middle East disrupted global shipping routes. European natural gas prices are also on track for their biggest monthly increase since March, while government bond yields have risen across major economies as investors reassess inflation risks.

Adding to the uncertainty, the United States imposed new tariffs of 10% and 12.5% on goods from 60 trading partners, including the European Union and China, raising concerns that import prices could increase further.

Alessia Berardi, Head of Global Macroeconomics at Amundi Investment Institute, said stagflation risks have been present since March but have intensified with the latest escalation in the conflict.

Energy Prices Drive Inflation Fears

Energy prices remain the primary driver of near-term inflation expectations. Brent crude, which had fallen to around $70 per barrel earlier in July following optimism over a ceasefire, surged back to $100 after Houthi forces claimed responsibility for attacks on two Saudi oil tankers in the Red Sea.

Oil prices are now up nearly 40% during July, while European benchmark natural gas futures have climbed to their highest level since March.

Inflation Expectations

Although U.S. inflation for June came in below expectations, the rebound in energy prices quickly pushed government bond yields higher across the United States, Europe and Japan.

Kristjan Kasikov, Head of FX Quant Investor Solutions at Citi, said financial markets have historically been slow to fully reflect the inflationary impact of sharp increases in energy and agricultural commodity prices.

Food Supply Risks

Analytics firm Kpler estimates that around one-third of the world's fertiliser shipments pass through the Strait of Hormuz, suggesting prolonged disruption could keep food prices elevated and place additional pressure on vulnerable emerging-market economies.