Financial FAQs
“The Producer Price Index for final demand increased 0.5 percent in January. Prices for final demand services advanced 0.8 percent, and the index for final demand goods declined 0.3 percent. On an unadjusted basis, the index for final demand rose 2.9 percent for the 12 months ended in January.” BLS.gov
Why shouldn’t President Trump’s new Gulf War repeat the 1970’s Arab Oil Embargo (OPEC) stagflation—slowing economic growth + higher inflation—that caused several recessions and resulted in the double-digit inflation of the era?
Iran has said it is closing the Gulf of Hormuz. It has been producing three million barrels of oil daily, has 24 percent of Middle East oil reserves and 12 percent of world reserves, and 30 percent of the world’s oil supply goes through the Gulf, according to the U.S. Energy Information Administration.
Though oil is not as important and energy source now as it was then, says Paul Krugman in Substack, it will still cause higher energy prices—maybe 10 percent higher or more, according to the experts—and oil and gas prices are still a major factor in the inflation equation.
The Producer Price Index measures wholesale prices for products and services that go into finished products have been rising throughout last year. So it is the first place economists look to see the direction of inflation.
Wholesale inflation is surging in large part because it measures the import prices of the raw materials, such as auto parts, that have been boosted by Trump’s tariffs.
Defense Department Secretary Hegseth was quick to say in the first press conference that the Iran war wouldn’t be a repeat of the Iraq war that would mire US in another long war.
But the 1970’s era of stagflation was caused by more than scarce oil. Labor unions were stronger then and could lobby for higher wages to pay for the higher prices, which in turn kept inflation rising in a wage-price spiral until it reached an eye-watering 14 percent
And we have a similar labor problem today. Workers can lobby for higher wages today because there are fewer of them in the workforce. Trump is deporting many of the undocumented workers that work in construction and agriculture, and many of the rest of the estimated 11 million are hiding rather than going to work. Also AI, CHAT GBT, and the like are causing more layoffs at major employers such as Amazon, for starters, further shrinking our workforce.
The irony is that the massive investments in building out the AI energy centers is already making electricity more expensive as well as putting more white-collar employees out of work.
This means fewer consumers are shopping when 70 percent of GDP growth is generated by American consumers! So, I see slowing economic growth as well.
A declining workforce pushing for higher wages that faces higher oil, gas and electricity prices will put more pressure on inflation, and could lead to the classic wage-price spiral that was the ultimate cause of 1970’s stagflation. This is while Trump is saying the Iran war could last just weeks?
The DOW Index has plunged more than -1100 points at this writing on fears the war will spread throughout the Middle East and beyond.
So, our stock market’s behavior will probably determine how long our TACO President will want to prolong this war.
Harlan Green © 2026
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
