Central Banks Pre-emptive Rate Hikes and Supply Shocks

HSBC argues that enduring supply shocks from the Strait of Hormuz closure require central banks to hike rates pre-emptively to maintain inflation-fighting credibility. Despite market optimism, rising oil prices and supply chain bottlenecks pose significant risks to global growth and core inflation.

Key Takeaways

• 1.The effective closure of the Strait of Hormuz due to US-Iran conflict is causing record global oil supply disruptions with enduring effects.
• 2.Central banks must raise interest rates pre-emptively to preserve credibility, even if a peace deal occurs, due to persistent supply shocks.
• 3.Global energy costs have already jumped CPI by 1ppt in the US/Eurozone and significantly more in emerging markets like Thailand (+3.9ppt).

Table of Contents

• Equity market strength has been underpinned by strong earnings...
• Growth Impact So Far: Modest but Deteriorating
• Inflation Surge
• Oil price revision
• Looming Supply Chain Risks
• Central Bank Response: Credibility Over 'Fighting the Last War'
• Outlook

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