Two months after the Strait of Hormuz closure, the economic impact is beginning to show in the data.
In the US, in March, headline inflation rose to 0.7% month-over-month and 3.5% year-over-year, while core inflation picked up to 0.3% and 3.2%. Services inflation excluding housing remains at 3.5% year-over-year, reinforcing a persistent 3–4% trend.
In the eurozone, inflation climbed to 3.0% year-over-year in April, up from 2.6%, driven primarily by a surge in energy prices, which rose 10.9%. Strip that out, and the picture looks calmer: services inflation is still running at 3.0%, food-related prices are up 2.5%, and industrial goods remain moderate at 0.8%.
Looking at the broader picture, the US might seem relatively protected by its domestic oil and gas production and service-oriented economy. However, exports are only a drop in the ocean compared to the damage that high gasoline and oil prices inflict on the domestic market, even if the S&P 500, Nasdaq, or Dow Jones don’t yet reflect it.
Another risk is that oil-importing economies, such as Japan, could tap into their foreign exchange reserves to cover rising energy and fertilizer costs. And if Turkey were to sell gold to finance the government’s needs, other countries might sell U.S. Treasury bonds instead, putting additional pressure on the U.S. debt market.
Moving to the eurozone, business activity has slipped into contraction territory, with the index falling from 50.7 to 48.6 — a move that’s also been reflected in EURUSD sensitivity in recent trading. At the same time, inflation expectations are starting to look less anchored. The ECB’s survey shows one-year expectations jumping to 4.0% and three-year expectations rising to 3.0% — both well above target.
Across Asia and Africa, rising fuel and food prices are feeding directly into poverty, while industrial output is being scaled back. This is no longer just an inflation story — it’s turning into a broader growth shock.
Thus, the hesitation from central banks to tighten monetary policy comes down to three main factors: first, the hope that this inflation spike is temporary; second, concerns that tighter policy could further damage already fragile economies; and third, the risk that acting too aggressively would mean higher rates and higher debt-servicing costs, potentially triggering broader financial strain — especially in heavily indebted economies.
Now, if inflation proves more persistent than expected, and in a worst-case scenario, the Strait of Hormuz remains closed for longer, central banks may have no choice but to resume hiking interest rates.