The global economic landscape is currently defined by a jarring contradiction: growth is slowing down, but the cost of doing business is surging. In the United States, the latest data suggests the US service sector cools, inflation heats up, creating a precarious environment for policymakers who are trying to balance a cooling economy with stubborn, rising prices.
This “stagflationary” pressure is not limited to the American mainland. From the contracting services sectors in Canada to record-high input price inflation in Singapore, a pattern of supply-chain disruption and heavier input costs is emerging across major trading partners. For New Zealand, these shifts are more than just distant data points. they represent a direct threat to import costs and overall economic stability.
The volatility is being compounded by a geopolitical stalemate in the Persian Gulf. With the US and Iran rejecting each other’s proposals to end their conflict, the energy market has reacted sharply, pushing oil prices higher and fueling a cycle of inflation that services firms are now passing directly to consumers.
The American Paradox: Slowing Growth, Rising Costs
The most recent March ISM services PMI indicates a notable deceleration in activity. Even as the sector is still expanding, the pace of that growth has slowed rapidly compared to February. More concerning for the labor market is the finding that employment in the services sector is now contracting.
Despite the dip in activity and hiring, prices are not following suit. Firms reported that prices are rising at their fastest rate since October 2022. Unlike previous cycles where businesses might absorb costs during a slowdown, current data suggests firms are aggressively pushing recovery price increases through to the end user.
This trend is mirrored in the S&P Global services PMI, which recorded its first decline in activity since January 2023. That report highlighted the weakest rise in new orders seen in nearly two years, alongside steeper increases in both input costs and output prices. When activity drops but prices rise, the result is a squeeze on profit margins and a higher cost of living for the general public.
Energy Shocks and Geopolitical Friction
A primary driver of this inflationary spike is the cost of fuel. The ongoing conflict between the US and Iran has created a volatility spike in the energy markets, with American oil prices climbing to just over US$114 per barrel and international Brent crude hovering just under US$110.50.
The impact on the pump has been severe. Since the onset of the conflict, petrol prices have jumped 38%, while diesel—the lifeblood of logistics and freight—has surged by 51%. These costs act as a regressive tax on the economy, increasing the price of everything from grocery deliveries to industrial manufacturing.
Beyond the energy markets, warnings are emerging from the top of the financial sector. Jamie Dimon, CEO of JPMorgan Chase, has signaled that losses in private credit may be significantly larger than the market currently assumes, suggesting that the “hidden” risks in non-bank lending could create further instability if the economic slowdown deepens.
A Global Trend of Input Pressure
The struggle with input costs is a global phenomenon, with several key economies reporting similar stresses:
- Singapore: The economy continues to expand, but the March PMI dropped to its lowest level of 2026 so far. Most strikingly, input price inflation has accelerated to a ten-year high. Retail sales also saw an unexpected seasonally-adjusted decline of 4.1% in February.
- India: While services are still expanding rapidly, the growth trend has been receding for eight months. Input price inflation has hit a 45-month high, and new business activity has seen its weakest rise since January 2025.
- Canada: The services PMI has been contracting for five straight months. Whereas the March shortfall was the mildest in that period, inflation continues to accelerate, driven primarily by fuel and transportation costs.
Market Reactions and the Kiwi Dollar
Financial markets are attempting to price in this instability. In the bond market, the US 10-year Treasury yield sits at 4.34%, while the New Zealand Government 10-year bond rate remains steady at 4.76%. In Australia, the 10-year yield has ticked up to 5.04%.
| Asset | Current Value | Movement |
|---|---|---|
| Kiwi Dollar (vs USD) | 57.1 USc | +20 bps |
| Bitcoin | US$69,614 | +3.4% |
| Gold | US$4,651/oz | -US$24 |
| S&P 500 | +0.2% | Open |
The New Zealand dollar has shown some resilience, rising 20 basis points to 57.1 US cents, though it has dipped slightly against the Australian dollar to 82.6 AUc. This movement reflects a broader market hope that the Persian Gulf crisis may resolve before the energy shock becomes permanently embedded in global price structures.
Disclaimer: This report is provided for informational purposes only and does not constitute financial, investment, or legal advice.
The immediate focus for investors and policymakers will be the next round of inflation data and any diplomatic breakthroughs regarding the US-Iran conflict. Until oil prices stabilize, the pressure on the services sector is likely to persist, keeping the threat of “sticky” inflation alive across the globe.
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