J.P. Morgan Warns of Stagflation Risk Amid Persistent Inflation
Quick Look
- James Sullivan of J.P.
- Morgan warns that stagflation could emerge even without significant economic slowdown if oil remains above $100 a barrel, citing AI industry issuance, government deficits, El Niño, and Middle East conflict as contributing factors to sticky inflation and supply-demand imbalances.
AI-generated summary
Why It Matters
Stagflation refers to a period of stagnant economic growth combined with high inflation, last prominently observed in the 1970s. Current concerns stem from persistent inflation despite moderate growth.
Keep watch for signs of stagflation, even if there isn't a significant slowdown in the economy, according to J.P. Morgan.
If oil stays above $100 a barrel over an extended period of time, it risks marking the start of a stagflation period, though economic growth may not necessarily slow down significantly, said James Sullivan, managing director and co-head of global fundamental research at J.P. Morgan, on CNBC's "Squawk Box Asia."
"Reasonable levels of economic growth with higher levels of inflation start to trigger this stagflation conversation for the first time really since the 70s," he added.
According to Sullivan, record issuance in the AI industry and more governments running into record-level deficits "will absolutely have an impact on pricing," especially in an environment of weaker demand.
"More and more investors with longer-term views look into the corporate space rather than in the government space," Sullivan said, noting that there is a mismatch of supply and demand.
Moreover, the effects of El Niño and the Middle East conflict are also weighing on the global economic outlook.
"One of the reasons why you've seen really one of the first coordinated central bank tightening cycles in many many years is triggered by exactly that," Sullivan said, adding that food and energy prices have been rising.
"At the same time that core inflation has been relatively sticky, we don't necessarily see that environment turning around in the short term," Sullivan noted.
What to Watch
AI outlook — possibilities, not facts
Central banks may continue or extend tightening cycles if oil prices remain elevated
Likely · Within months
Investor preference may shift further toward corporate assets over government bonds
Possible · Within months
Open Questions
- How long must oil remain above $100/bbl to trigger stagflation?
- What specific policy responses are being considered by central banks?
- How will AI industry growth affect long-term inflation trends?
