Beware! US-Iran War Could Bring Global Stagflation Back

The global economy is once again at risk of experiencing stagflation, akin to the COVID-19 era. Stagflation describes a situation where global economic activity consistently slows, accompanied by mounting inflationary pressures.

Bank Indonesia’s (BI) Senior Deputy Governor Destry Damayanti explained that this global stagflation risk has emerged following the war between the United States and Israel with Iran, which has placed significant pressure on various commodity prices due to the disruption of one of the world’s major oil and gas trade routes, the Strait of Hormuz.

“This increases shipping and logistics costs, leading to disruptions in the global supply chain. In conclusion, global commodity prices are rising—gold, coal, nickel, agriculture, and the latest is plastics due to supply chain issues, ultimately resulting in production declines,” said Destry at the Central Banking Forum 2026 CNBC Indonesia event in Jakarta on Monday (13/4/2026).

Destry elaborated that the rise in global trade commodity prices, which leads to production declines, will undoubtedly hinder global economic activity, slowing the pace of world GDP growth. However, this pressure is accompanied by high price increases due to supply disruptions, not high demand.

“The impact is that global GDP will slow, but inflation will rise. This is called stagflation—not good at all. Policy responses become crucial,” said Destry.

In response to this global risk, Destry stated that central banks around the world will adopt a cautious stance in formulating monetary policies in coordination with their governments through fiscal policies.

“Some countries will implement looser fiscal policies. The downward trend in monetary policy will be more cautious because now there’s a race to make domestic assets attractive,” revealed Destry.