Welcome to Stagflation

For the last year, I’ve been talking about how the biggest risk to the global economy wasn’t recession.

It was stagflation.

Now the European Central Bank is effectively telling us the same thing.

Look at the chart.

Just six months ago, the ECB expected inflation to be 1.9% in 2026. By March, that estimate jumped to 2.6%. Now they’re forecasting 3.0%.

At the exact same time, economic growth expectations continue moving lower.

That’s a problem.

Because central bankers think they know how to fight inflation.

And they think they know how to fight economic weakness.

What they struggle with the most is when both show up at the same time.

That’s the position Europe finds itself in today.

The ECB just raised interest rates by 25 basis points for the first time since 2023. The move was fully expected, but the reason behind it matters.

Inflation is moving higher.

Growth is moving lower.

And much of the pressure is coming from the exact place we’ve been discussing for months: energy.

The ECB specifically cited the Middle East conflict and rising energy prices as reasons for increasing rates. Their new forecasts show inflation running hotter through 2026 and 2027 while economic growth slows.

In other words, policymakers are trying to put out an inflation fire while the economy is already losing momentum.

That’s not an easy balancing act.

The market’s reaction was muted because the hike was already priced in. Traders knew it was coming.

What matters isn’t the hike itself.

What matters is what the ECB is admitting.

They’re acknowledging that higher commodity prices are feeding into the broader economy.

They’re acknowledging that inflation isn’t disappearing as quickly as expected.

And they’re acknowledging that growth is becoming harder to find.

For commodity investors, that’s important.

Historically, periods of rising inflation combined with slowing growth have been fertile ground for hard assets, energy, and commodities.

Not because they’re immune to economic slowdowns.

But because they’re often the reason inflation remains elevated in the first place.

This is why I’ve continued to focus on energy, industrial commodities, materials, and real assets while so many investors remain obsessed with predicting the next recession.

The story isn’t recession versus growth.

The story is inflation versus growth.

And right now inflation is winning.

The ECB’s latest forecasts paint a pretty clear picture.

Higher inflation.

Slower growth.

More uncertainty.

Call it whatever you want.

I call it stagflation.

And it’s one of the reasons I continue to believe the commodity story isn’t over yet.

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