Trump’s war is starting to strangle the world

Even before the full effects of the impact of the war in Iran flow through the global economy, it is showing signs of the stresses of the worldwide energy shock the conflict precipitated.

In the US, already-lukewarm economic growth numbers for the first quarter of the year – containing only the first month of the spike in oil and gas prices – were revised down late last week, while, in April, the inflation number, which the US Federal Reserve Board regards as its key indicator, rose.

In France, inflation hit a two-year high of 2.8 per cent last month even as the economy is contracting. Italy and Spain are also experiencing rising inflation rates, with the European Central Bank expected to raise its policy rate at least once before the end of the year.

In China, manufacturing activity slowed last month and consumer spending, already weak, decelerated to its lowest levels in four years. Industrial output and investment are still falling, according to data released over the weekend.

While oil prices have fallen back from their post-attack highs as the talks about a deal to end the war drag on, the full effect of the war on oil, gasoline and diesel prices have yet to be reflected in the data.

Even if the war were to end this week, there has been massive depletion of global oil inventories. It will take months to restore stocks to their former levels and, in the meantime, the elevated cost of transport fuels will continue to trickle through supply chains and into end prices and inflation rates.

The average price for gasoline in the US, for instance, is now about 37.5 per cent higher than a year ago, and the average diesel price 55 per cent higher.

Consumer prices in the US and elsewhere were, even before the war, edging up because of Donald Trump’s tariffs on everyone and almost everything.

The US inflation rate was 2.4 per cent in February, but jumped to 3.3 per cent in March and then to 3.8 per cent in April.

The personal consumption expenditures index favoured by the Fed showed headline inflation rising from 3.5 per cent in March to 3.8 per cent in April. Excluding volatile energy and foods prices the rate rose from 3.2 per cent to 3.3 per cent.

Trump’s newly-installed Fed chairman Kevin Warsh is going to struggle to make the case that US interest rates should be cut when, having been above the Fed’s target of 2 per cent for five years, the inflation rate continues to rise and is becoming embedded in US supply chains and in inflation expectations, which have also risen sharply.

Before Trump’s tariffs and war, inflation rates around the world wer