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Morgan Stanley has released an analysis indicating that the pass-through of tariffs to core inflation is easing, with the impact of oil prices on core inflation remaining contained. The report highlights that while trade tensions and geopolitical risks have historically driven inflation through supply chain disruptions, recent data shows diminishing effects. Additionally, the firm notes that even with oil price fluctuations, core inflation metrics have not shown significant upward pressure, suggesting resilience in consumer demand and supply chain adjustments.
This development is crucial for markets as it implies central banks may not need to adopt aggressive rate hikes to combat inflation, easing pressure on equity markets and bond yields. Traders should monitor upcoming inflation data and central bank statements for confirmation of this trend. A contained inflation trajectory could support risk-on sentiment, particularly in sectors sensitive to economic growth like technology and industrials.
For investors, the analysis underscores the importance of tracking energy price volatility and its indirect effects on inflation. With oil's influence limited, attention may shift to labor market dynamics and wage growth as key inflation drivers. Policymakers in oil-dependent economies, such as Gulf nations, should also assess how global energy price stability impacts domestic fiscal planning and economic diversification goals.
