As the United States fails to find an early exit strategy from the war with Iran, some are advising the world economy to brace for another shock: "inflation."
Price-related indicators are already flashing warnings. According to iM Securities, the impact of high oil prices is already reflected in several indicators. In March, the price index within the U.S. ISM manufacturing index hit 78.3, the highest since June 2022 (78.5), and the price index within the ISM services index also jumped to 70.7, up 7.7 points from 63.0 the previous month. It is the highest reading since 70.7 in Oct. 2022.
Park Sang-hyun of iM Securities said, "These indicators signal that the consumer price inflation rate will rise steeply."
Market expectations for March consumer prices, scheduled to be released on the 10th, are forecast to surge from the previous month. The current consensus is 1.0% month over month and 3.4% year over year. Following the tariff shock, the impact of high oil prices is likely to push U.S. consumer inflation back into the 3% range, potentially reaching the highest level since Apr. 2024.
The University of Michigan's one-year inflation expectations for April, to be released the same day, are also being surveyed at 4.4%, up 0.6 percentage points from March.
Researcher Park Sang-hyun said, "Given the surge in international oil prices due to the Iran crisis, the sharp rise in U.S. prices and inflation expectations was somewhat anticipated, but it is uncertain whether markets will stay calm even after the inflation data are released." Moreover, if the United States and Iran fail to reach a cease-fire or end-of-war agreement this month as well, price pressures could expand further.
The expected inflation shock is not limited to the United States. Considering the spike in oil prices and the won's exchange rate exceeding 1,500 won per $1, Korea's consumer price index this year is also likely to far exceed the Central Bank's 2% annual target.
Lee Seung-hoon of Meritz Securities raised his outlook for Korea's consumer price index this year to 2.6% from 2.3% and projected that the third-quarter price index could reach 3.0%.