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Surging oil prices fuel fears of dreaded phenomenon

Stagflation is the biggest scourge: WE Family Offices CEO

Just a few months ago, investors seemed relatively optimistic about the dire prospect of stalled economic activity and rising inflation.

However, a surge in oil prices to the brink of $100 a barrel and worries about continued higher inflation have revived worries about the risk of stagflation.

“I think the biggest problem is stagflation, we’re stuck in this high inflation and low growth situation,” Mel Lagomasino, CEO of WE Family Offices, told CNBC’s “Squawk Box” on Wednesday. “

Lagomasino cited comments from Minneapolis Fed President Neel Kashkari, who explain An article earlier this week said U.S. interest rates may have to move “significantly higher” to reduce stubborn, sticky inflation.

Kashkari reiterated that message in an interview with CNBC on Wednesday, saying he wasn’t sure rates had been raised enough to successfully curb rising prices.

“It looks like they may not only stay higher for a longer period of time, but they may stay higher for a longer period of time,” Lagomasino said, adding that she believed a recession was “certain” coming soon.

Federal Reserve Chairman Powell speaks at a press conference after the Federal Reserve’s Federal Open Market Committee meeting in Washington, D.C., on September 20, 2023.

Chip Somodevilla | Getty Images News | Getty Images

Stagflation first appeared in the 1970s, when the oil crisis led to long-term price increases but a sharp decline in economic growth.

This phenomenon is characterized by slow growth, high unemployment and soaring inflation. One factor that’s missing is the high unemployment rate, which remains at a relatively low 3.8% – although there are concerns that mounting job cuts could mean that could soon change.

Market participants are concerned that soaring oil prices may keep inflation rising, exacerbating the risk of stagflation.

Brent crude futures have risen by more than $20 a barrel in the three months to the end of September, a rebound that has put a return to $100 in focus. The international benchmark last traded at $95.98 on Friday, up 0.6% on the day. US West Texas Intermediate Oil Meanwhile, futures rose 0.9% to $92.57.

Oil prices rose amid growing expectations of tight supplies after OPEC leader Saudi Arabia and non-OPEC heavyweight Russia moved to reduce global inventories and extend some voluntary oil supply cuts to the end. This year’s. OPEC and non-OPEC oil-producing countries are collectively known as OPEC+.

“In early summer, investors became increasingly confident that the global economy was emerging from the plague of stagflation,” analysts at Generali Investments said in a research note released on Thursday.

“They are reconsidering — and rightly so.”

‘Real concern’

Looking ahead to the fourth quarter, analysts at Generali Investments said a spike in oil prices was “most unwelcome” as it could push headline U.S. inflation higher and hurt economic growth.

“Price pressure reflects supply shortages after OPEC+, led by Saudi Arabia and Russia, cut production targets. This must be seen against the backdrop of a changing geopolitical environment, with Saudi Arabia recently joining the BRICS grouping,” they added.

Last month, the BRICS Emerging Market Economic Alliance Six countries are invited to become members.

The alliance, currently made up of Brazil, Russia, India, China and South Africa, has asked Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates to become new members of the group, with membership effective from January. January 2024.

On September 13, 2023, customers shopped in a supermarket in Foster City, California, USA.

Xinhua News Agency | Xinhua News Agency | Getty Images

Paul Gambles, co-founder and managing partner of MBMG Family Office Group, said on Friday that rising oil prices could keep inflation higher for longer. He also said policymakers appeared determined to bring the risk of stagflation back into consideration.

“Oil prices remain a real wildcard. What we’re seeing now is that we could end up in a situation where demand for oil is really weak, but prices could still continue to go higher because of the fact that there’s a capacity to limit supply,” Gambles told CNBC’s “Squawk Box Europe.”

He cited Germany, Europe’s traditional growth engine, as a striking example where high inflation and low growth appear to have set in.

“Germany looks to be on the verge of a sharp economic slowdown, and energy prices could lead to a spike in inflation,” Gambles said.

“If you look at the premiums being charged for U.S. oil currently being shipped due to lower inventories in states, policymakers, with the help of OPEC and other oil suppliers, are doing everything they can to create the possibility of stagflation. This is a A real concern.”

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