The Next Inflation Wave Is Already Here | Prof G Markets
TL;DR
The Iran conflict is driving a new inflationary wave through surging energy, fertilizer, and freight costs, while GDP growth slows and rate cut expectations evaporate. Despite these stagflation risks, markets remain complacent—only 5% off all-time highs—creating a dangerous disconnect between economic reality and asset prices.
🛢️ Commodity Shock & Supply Chain Disruption 3 insights
Energy and input costs soaring
Since strikes began 23 days ago, fertilizer prices jumped 25%, gas and diesel rose over 30%, and jet fuel surged roughly 50%, costing Americans an additional $300 million daily for gasoline.
Freight and logistics under pressure
Freight prices are up approximately 30% alongside construction materials, while war risk insurance premiums for Persian Gulf vessels increased 50% and regional traffic dropped 75%.
Agricultural inflation threatens food prices
Gulf States produce nearly 49% of the world's urea fertilizer and 30% of its ammonia; ammonia prices have skyrocketed 92% year-on-year in the US, signaling severe food price inflation ahead.
📉 Stagflation Risk and Monetary Policy 3 insights
Growth slows while inflation accelerates
Real GDP growth was revised down to 0.7% for Q4 2025 while core PPI jumped 3.9%—the largest increase in three years—creating textbook stagflation conditions.
Rate cut expectations erased
Markets have abandoned hopes for two rate cuts in favor of a 'higher for longer' scenario, with analysts now warning of potential rate hikes in 2026 that would increase borrowing costs across mortgages, credit cards, and business loans.
Housing costs facing new pressure
Construction material prices have risen 30%, threatening to replicate the post-COVID lumber shock that added $35,000 to the price of a new home.
📊 Market Complacency and Investor Psychology 2 insights
Disconnect between markets and economic reality
Despite deteriorating fundamentals, the S&P 500 remains only 5% off its all-time high, suggesting investors are severely underestimating the inflationary impact of the conflict.
Trauma from previous panics creates optimism bias
Investors burned by panic-selling during the tariff scare are now in 'wait and see' mode, ignoring historical patterns that suggest Middle East conflicts often last longer and cost more than initially projected.
Bottom Line
Position for persistent inflation and higher interest rates through late 2025 and 2026 as the Iran conflict disrupts critical supply chains, and resist the market's current complacency—the economic drag from energy and fertilizer shocks has likely been underestimated.
More from The Prof G Pod (Scott Galloway)
View all
Is the Oil Crisis About to Break Global Supply Chains? | Prof G Markets
The closure of the Strait of Hormuz and ongoing Red Sea disruptions are triggering a severe energy crisis that threatens global supply chains through spiking fuel costs and cargo capacity shortages, signaling a potential end to the era of unfettered globalization protected by US naval dominance.
Apple Doubles Down on China as Trump Blinks | China Decode
Tim Cook's China visit reveals Apple's vulnerability to Beijing's demands as the company reduces App Store fees under pressure, while Trump's delayed summit exposes how China is using the Iran crisis to position itself as a stable alternative to US leadership.
The 35% Recession Warning Markets Are Ignoring | Prof G Markets
Economist Ed Yardeni explains why he raised his recession probability to 35% due to oil price shocks and geopolitical instability, while analyzing why markets remain surprisingly calm despite growing risks to consumer spending and private credit markets.
Can Journalism Survive AI? — with NYT CEO Meredith Kopit Levien | Prof G Conversations
New York Times CEO Meredith Kopit Levien explains how sustained investment in original journalism drove record growth (13 million subscribers, $3B revenue) while detailing a dual AI strategy of aggressive copyright lawsuits and strategic partnerships to protect intellectual property, insisting that human reporting remains irreplaceable at the core of the craft.