BMI Chief Economist warns inflation pressures are far from over

The market is still treating Hormuz disruption as a headline risk, but the more durable spillover is inflation convexity: energy shocks hit transport, chemicals, airlines, and broad input costs immediately, while central banks only react after inflation expectations have already drifted. That creates a window where nominal rates can stay “higher for longer” even if growth softens, which is a worse mix for duration-sensitive assets than a clean growth scare. In other words, the first-order move is oil; the second-order move is a repricing of the policy path.

The asymmetric winners are upstream energy, freight/energy services, and parts of defense/logistics infrastructure tied to rerouting and stockpiling. Losers are sectors with weak pricing power and high fuel intensity, especially airlines, European industrials, and emerging markets that are net energy importers and already running external deficits. The less obvious loser is the consumer discretionary basket: even if headline CPI is temporary, gasoline acts like a tax cut in reverse and tends to compress spending within weeks, not quarters.

Consensus is likely underestimating how quickly positioning can unwind if the shock persists for multiple shipping cycles rather than days. The key catalyst is not another spike in crude itself, but evidence that insurers, shippers, or refiners are imposing persistent risk premia, which would keep product markets tight even if physical flows continue. If geopolitical tension eases, the reversal will likely be sharp because a lot of macro hedging is being done with options rather than spot exposure, so implied volatility can collapse faster than realized prices.

The contrarian angle is that this may be less about a sustained supply shortage and more about a policy credibility test: if central banks signal they will look through the shock, risk assets can stabilize even with elevated oil. But that only works if inflation expectations remain anchored; once breakevens move, the market starts pricing a slower cutting cycle and tighter financial conditions, which is the real transmission channel to equities.