"Israel-Iran Conflict Unlikely to Significantly Trigger Inflation"

DB Financial Investment diagnosed on the 15th that the conflict between Israel and Iran is unlikely to cause inflation, unlike the past 1st and 2nd oil shocks.

Researcher Kang Hyun-ki said, "There is a notable point in all past incidents where inflation occurred due to oil shocks," adding, "It is the fact that there was a prior expansion of liquidity before the oil-producing countries' situation worsened and oil prices surged, which means the current situation should be viewed differently."

The first oil shock in 1973 was preceded by several years of significant liquidity supply. The United States expanded military fiscal spending during its involvement in the Vietnam War. The U.S. Federal Reserve (Fed) also implemented an accommodative monetary policy from 1970 to 1972 to stabilize the economy.

During the second oil shock in 1980, there was also a prior expansion of liquidity. Even before the second oil shock occurred, high unemployment was a problem in the U.S. The Fed conducted accommodative monetary policy from the second half of 1974 to 1977.

Researcher Kang pointed out, "Although the oil shocks at that time were significant events, the reason oil prices surged and inflation was triggered due to overinterpretation was because of the prior expansion of liquidity."

The recent Russia-Ukraine war is also in the same context. He explained, "When Russia invaded Ukraine in February 2022, oil prices rose to $120 per barrel. Prior to that period, there was liquidity expansion through ultra-low interest rates and unlimited quantitative easing, which led to the full-scale onset of inflation."

He added, "It is difficult to see the current geopolitical risks as likely to cause inflation again," and "Despite the possibility of short-term fluctuations, the stock market is viewed positively in the mid to long term."