More Central Bank Hikes Despite Lower-Than-Feared Oil Prices
September 29, 2026
Any U.S.-Iranian ceasefire deal before the U.S. midterm elections seems highly unlikely. And yet, the West Texas Intermediate price of crude oil settled back 0.8% from Monday’s closing level and at $91.86 is much closer to $90 than triple-digit territory. Somewhat greater traffic is moving through the Strait of Hormuz, and oil users are doing a better job of coping with this year’s energy supply shock. Nonetheless, inflation is significantly above desired levels in most countries — not exclusively because of twin wars in Iran and Ukraine because the frenzied heavy investment in artificial intelligence bears heavy responsibility, too.
Monetary authorities and bond markets, as well as buyers of energy, are adjusting to a changed landscape. Late yesterday came an announcement from the Bank of Jamaica of a 50-basis point increase in its policy interest rate to 6.0%, marking the first increase since November 2022. A released explanation of this directional rate reversal notes that since the prior policy review in August,
The escalation of tensions in the Middle East and the Russia-Ukraine conflict have resulted in a worsening of persistently high commodity prices consistent with the assumptions underpinning the Bank’s severe scenario. In addition, higher domestic agricultural inflation is likely to persist for a longer-than-projected period due to the intensification of the El Niño weather condition and its negative impact on crop yields. Global financial conditions have also tightened more rapidly than projected in the context of the prevailing elevated uncertainty.
The Reserve Bank of Australia had hopped on the interest rate tightening band wagon back in February and today announced its fourth 25-basis point increase so far in 2026. As in Jamaica’s case, the RBA decision was taken unanimously, and similar concerns were cited in a statement that also promises “to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed.”
The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts. AI-related demand is driving rapid growth in global prices for technology-related goods. And there remains pressure on domestic capacity. …Short-term measures of inflation expectations remain elevated. And recent inflation outcomes in Australia were stronger than expected at the previous meeting.
Although a tad lower today in some cases, U.S. 3-month, 2-year, 10-year and 30-year Treasury yields have touched peaks this week (respectively of 4.22%, 4.97%, 5.28% and 5.58%) that were unthinkable before the U.S. and Israeli disastrous joint decision to go to war with Iran.
Ten-year sovereign debt yields today have backed down seven basis points in the U.K., six bps in Germany, five bps in Italy, Spain and Switzerland, four bps in Australia but just 2 bps in Canada and a single bp in the United States.
The dollar’s appeal as a refuge currency continues, with overnight advances of 0.2% against the euro, Swiss franc, and sterling. There has been a 0.4% advance against the Aussie dollar in spite of the aforementioned RBA interest rate hike, but the yen remains steady, supported by feared and possible actual intervention support.
Stock markets fell 0.6% in Japan, 0.5% in Hong Kong, and 1.1% in New Zealand, but European bourses and U.S. equity futures are up somewhat. Bitcoin’s price has revived 1%, and for a change gold (+0.9%) and silver (-0.9%) show divergent price moves.
China’s second quarter current account has been revised marginally to a surplus of $193.7 billion. Whereas the United States current account during the first year-and an half of President Trump’s second term accrued a deficit of $1.636 trillion, China over the same period ran up a current account surplus of $1.113 trillion.
U.S. house price inflation ticked marginally higher in July and exceeded expectations with readings of 2.6% and the FHFA index and 2.5% from the Case-Shiller index.
Economic sentiment in Euroland unexpectedly eased in September. The 2-month low reading of 97.9 was not a half-point lower than August’s reading and interrupted a streak of four consecutive monthly improvements to a 7-month high. Consumer confidence was left unrevised from a 3-month low reported earlier. Among sectors, manufacturing and services improved but retail and the labor market weakened. Selling price expectations climbed to a 3-month high.
Italian producer price inflation accelerated sharply to a 43-month high of 10.9% in August from 7.7% in July and -2.7% as recently as February.
Belgian consumer price inflation of 4.7% this month was its highest in 40 months and up from 1.1% in January.
Icelandic CPI inflation climbed to 5.9% in September, a 25 month high, from a 59-month low last November of 3.7%.
Spanish consumer price inflation of 4.9% this month was at a 43-month high versus 4.2% in August and a cyclical low of 1.5% touched in September 2024.
British shop prices in September exceeded year-earlier levels by only 1.4%, and mortgage approvals in the U.K. fell short of forecasts, with a 16.6% year-on-year decline in August to 54,500.
Japan’s revised indices of leading and coincident economic indicators had their highest scores in 150 and 93 months, respectively.
Confidence among South Korean manufacturers dipped 2 index points in September but remained near the 49-month high in July.
Household spending in Australia stayed unchanged in August after a monthly uptick of just 0.1% in July.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Bank of Jamaica, Italian PPI, Reserve Bank of Australia, Spanish CPI, U.S. house prices
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