Stagflation risks rise as oil prices threaten global growth outlook: Peter Cardillo

As geopolitical tensions continue to disrupt energy markets and inflation remains stubbornly elevated, concerns over the global economic outlook are intensifying. Investors and policymakers alike are grappling with the prospect of slower growth, higher prices, and the possibility that interest rates could remain elevated for longer than previously anticipated.

Speaking to ET Now, Peter Cardillo from Spartan Capital Securities said the world economy is increasingly exhibiting signs of stagflation—a combination of weak growth and persistent inflation that complicates central bank decision-making.

“Well, in terms of the global economy, there is no question that we are having a slowdown, and there is no question that inflation is going higher, and there is no question that we are in the midst of stagflation. So, that just changes the prospects in terms of any rate cuts on a global basis.”

According to Cardillo, central banks may be forced to reconsider their policy stance as inflation remains elevated. He suggested that while the European Central Bank may not immediately raise rates, tighter monetary policy appears increasingly likely.

“It is very possible that when the ECB meets next week, they are likely to change their policy statement by indicating a rate hike. Now, I am not sure if we will get a rate hike next week, but we will be getting them, and it is just a matter of time. The same applies to the United States.”

Energy Prices at the Heart of Inflation Concerns
Cardillo emphasized that energy remains the primary driver of inflation across major economies. While policymakers initially viewed rising prices as temporary, he believes inflationary pressures have become more deeply embedded.

“The key here is energy. This inflation that we have is being driven by oil prices, and it has spread. So, what was once considered perhaps transitory inflation now seems to be embedded in the pipeline, and that simply means inflation is likely to stay above 3%.”

He warned that if inflation remains elevated, the U.S. Federal Reserve could eventually be compelled to raise interest rates again.

“That would call for a rate hike, and that probably will happen in the first quarter of 2027. But again, everything depends on energy, and I do not see oil prices coming down to the point where we could say that this inflation will be transitory.”

Iran Standoff Could Prolong Market Uncertainty
Beyond economics, geopolitical developments continue to influence market sentiment, particularly in the Middle East. While discussions of a potential diplomatic resolution continue, Cardillo believes a quick breakthrough remains unlikely.

“I think that Iran is going to play this out as long as they can, and I also believe that President Trump is not likely to reignite a full-blown war again.”

He noted that despite ceasefire efforts, tensions remain high and both sides continue to hold firm positions on critical issues, particularly Iran’s uranium program.

“They are not going to budge until they get at least one or two of their demands. Right now, those demands seem to be pretty far apart. The supreme leader of Iran has said that the uranium will not leave the country, so that is the sticky point.”

Cardillo believes the ceasefire process could stretch well into the summer months, prolonging uncertainty in energy markets.

“The ceasefire could probably play out during the summer months, which means that oil prices will remain elevated.”

Supply Constraints Could Push Oil Back Into Triple Digits
Oil markets remain particularly vulnerable due to declining inventories and ongoing disruptions to shipping routes.

Cardillo pointed to shrinking global supplies as a major concern.

“One of the biggest problems we have now is that supplies are very low. Just yesterday, we saw another huge drop in stockpiles, and that means sooner or later the price of oil is going to respond to that.”

As a result, he believes the possibility of crude oil returning to triple-digit levels cannot be ruled out.

“There is a good possibility that we could see triple-digit oil prices return.”

A key factor remains the status of shipping through the Strait of Hormuz, one of the world’s most important energy chokepoints.

“The key question is: will the Strait of Hormuz traffic return to normal anytime soon? I do not see that happening right now. Could it happen in two months? Most likely, but that would be too late to prevent oil prices from spiking back up to triple-digit levels.”

Even a Quick Deal May Not Immediately Cool Oil Markets
While a diplomatic breakthrough could improve sentiment, Cardillo cautioned that logistical realities would prevent an immediate normalization of energy markets.

“There are two important key factors here. One, supplies are dwindling. Second, the Strait of Hormuz is still not open to traffic.”

Even if an agreement were reached in the coming days, he expects disruptions to persist for several weeks.

“Even if there was a deal announced early this morning, that would probably take anywhere from three to six weeks to get the Strait of Hormuz fully operable again, and so that would keep oil prices elevated.”

Rather than a sharp collapse in prices, Cardillo sees crude stabilizing at relatively high levels.

“That does not mean that they will go to $100 or $130. Of course, that would not happen. But what will happen is they will remain anywhere between $85 and $95 a barrel.”

Inflation Outlook Remains in Focus
For investors, the key takeaway is that inflation risks remain firmly on the radar. Elevated energy prices, constrained supplies, and unresolved geopolitical tensions continue to create a challenging environment for policymakers and financial markets.

With upcoming inflation data expected to provide fresh clues about price pressures, markets will be watching closely to determine whether central banks may need to maintain a tighter policy stance for longer than expected.