Intro
The financial world is holding its breath for this Friday, 10 April, when the U.S. Consumer Price Index (CPI) report is released. The Federal Reserve’s (Fed) dual mandate—maximum employment and price stability—makes every CPI print a direct input into rate decisions, but this time, it is not just another data point. With the Persian Gulf conflict now in its sixth week, soaring energy prices have turned inflation into the world’s single most important indicator. Indeed, at Elev8 broker, we see this week’s CPI as possibly the most watched economic release in years, and it matters far beyond Wall Street.
Inflation shock
Usually, markets focus on ‘core’ inflation, which excludes food and energy. But today, the world is different. Because of the intense conflict in the Persian Gulf and the resulting spike in oil and natural gas prices, headline inflation has become the most important indicator on the planet. As the U.S. dollar is the world’s reserve currency, movements in U.S. prices have a significant ripple effect globally. Central banks from Europe to Asia are now terrified they may have to raise interest rates again to fight this new wave of rising costs.
The current market consensus expects Friday’s report to show a year-over-year (y-o-y) inflation rate of 3.3%. However, many analysts, including those at Bank of America, warn that we could see a massive monthly jump of 1.0% (the largest since mid-2022), which would take core CPI to a 3.1% annualized rate and headline CPI to 3.5% or above. ‘I expect an ugly surprise’, says Kar Yong Ang, a financial market expert at Elev8 broker, adding that inflation risks have shifted heavily to the upside due to higher energy, food and fertiliser prices.
Indeed, since the war in Iran began, gas at the pump has rallied by 50% to over $4.14 per gallon. Additionally, the crisis has disrupted the production of fertilisers, feeding directly into food prices. The United Nations (UN) Food and Agriculture Organization (FAO) Index has already risen for two consecutive months, threatening to push millions of people into poverty. Energy and food together make up a major slice of every country’s CPI basket, so the pass-through is broad and rapid.
Yet institutional investors appear to be underestimating the scale of the shock. Indeed, a significant divergence has emerged between decentralised prediction markets and traditional financial indicators regarding the 2026 U.S. economic outlook. Prediction markets, such as Kalshi and Polymarket, now assign an 80% probability that U.S. inflation will exceed 3.2% for 2026 and 40% probability that it will be over 4.0%. This stands in sharp contrast to conventional markets, where interest rate swaps suggest investors see less than a 5% chance of a Fed rate hike in 2026, with most pricing in no increases at all for 2026 and in the first half of 2027. ‘It is as if the world is in a state of delusion, underestimating how deep the Persian Gulf crisis goes’, says Kar Yong Ang.
Reuters reported that European and Asian refiners are paying record high prices of near $150 a barrel for some crude oil grades, far exceeding prices for paper futures, highlighting the worsening supply crisis from the U.S.–Israel war with Iran. However, in the futures market, Brent’s six-month calendar spread has traded at an average backwardation of more than $20 per barrel over the past 25 days, up from less than $1 in January. The spread is the price difference between two Brent futures contracts expiring six calendar months apart. It cycles between backwardation (positive spread) and contango (negative spread) as the market alternates between periods of under- and over-supply, making spreads rather than spot prices a more useful indicator of expectations for future market balance. Right now, the spread is in backwardation, meaning that markets are pricing in a ‘short war’, and do not expect a crude oil deficit six months from now.
Still, even if a ceasefire is signed tomorrow, the damage to energy infrastructure in Qatar, Saudi Arabia, and the UAE is already done. Some liquified natural gas (LNG) disruptions are expected to last three to five years. Transit through the Strait of Hormuz remains risky. While diplomatic efforts are underway, the timeline for a return to standardised maritime operations remains unclear. Despite reports of a provisional ceasefire, insurers and shipowners continue to treat the waterway as a contested zone rather than a secure commercial route. This could keep the world’s most vital energy artery effectively throttled. All in all, supply chains are broken, and ‘inflationary psychology’ is back. The world must prepare for a major shock that will not be pretty.
If the 1.0% monthly jump materialises this Friday, it would likely force a massive repricing in the interest rate swap markets, which are currently (and naively) pricing in a less than 10% chance of further Fed hikes.
While the U.S. feels the pain at the gas pump, Europe and Asia are much more vulnerable. Both regions are heavy net energy importers. Asia already faces the risk of physical shortages, not just higher prices. Europe, still carrying elevated public debt from the pandemic and prior energy crisis, has far less fiscal room to cushion households and businesses. Higher borrowing costs from any renewed rate-hike cycle would hit debt-laden economies especially hard.
Where to turn?
In this environment, buying the dip in equities is a risky game’, argues Kar Yong Ang, adding that higher input would squeeze corporate profit margins, while central banks will maintain a hawkish stance to curb inflationary pressures. The euro may enjoy a short-term lift if the European Central Bank (ECB) is forced to sound more hawkish than the Fed, but longer-term structural challenges in the Eurozone remain unresolved. While speculating on oil futures carries substantial risk, a mean-reversion strategy—specifically fading parabolic price spikes—can be a logically sound approach for capturing swift, short-term profits. However, history shows that in times of geopolitical chaos, gold and precious metals are the safest place to be.
At Elev8 broker, we believe expertise means looking past the ‘transitory’ headlines. The inflation shock is here, and long-term protection over short-term gains should be the priority for every smart trader.
Disclaimer: This article does not contain or constitute investment advice or recommendations and does not consider your investment objectives, financial situation, or needs. Any actions taken based on this content are at your sole discretion and risk—Elev8 does not accept any liability for any resulting losses or consequences.
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