Disinflation Prints, Energy Risk, and the Return of Friction
The last two weeks have clarified the real shape of this cycle.
Disinflation is visible in the data, but the world is not becoming simpler. Instead, the economic regime is being shaped by second-order forces: geopolitics, trade flows, shipping routes, and the pricing of energy risk.
This entry documents the new balance: improving prints on paper, and persistent friction in the plumbing underneath.
On a Regime That Rewards Restraint
As volatility shifts from “markets” into “systems,” discipline becomes the differentiator.
In clean cycles, the economy communicates through one channel.
In modern cycles, it communicates through many and often with contradictions.
The correct response is not to force coherence, but to build operating posture: fewer assumptions, tighter filters, and higher respect for uncertainty.
Micro Signals: Consumers Still Moving, But Selectively
The UK data over the last fortnight has been instructive.
Inflation slowed to 3.0% in January (from 3.4% in December), with easing pressures across transport and food categories.
At the same time, retail volumes surprised to the upside: +1.8% month-on-month in January and the strongest annual pace in nearly four years.
This combination matters because it captures the nuance:
households are not collapsing they are re-optimising.
The Macro Environment: “Hold” Is Not a Pivot
Central banks are still communicating conditionality, not comfort.
Fed minutes highlighted policy split and ongoing sensitivity to upside risks, with “several” officials still seeing the possibility that rates may need to rise while also beginning to formally integrate AI’s impact on jobs and productivity into the macro discussion.
In Europe, the inflation story is complicated by global trade dynamics. Panetta explicitly pointed to the disinflationary influence of cheaper Chinese imports (higher volumes, lower prices) while warning energy markets remain exposed to geopolitical tensions.
The result is a world where “better inflation” does not automatically translate into “easy policy.”
Global Politics: Energy Risk Is Back in the Pricing Mechanism
This fortnight has also reminded markets that energy is never purely economic.
U.S.–Iran tensions have escalated materially, with military buildup overtaking diplomacy and the market explicitly repricing oil risk around potential disruption scenarios.
Separately, global trade remains sensitive to route uncertainty. Red Sea traffic has shown signs of reopening, but renewed threats keep uncertainty elevated for shippers and insurers.
These are not abstract stories. They transmit directly into freight costs, input pricing, and corporate confidence.
Where Attention Is Best Allocated
In this phase, the correct posture is to focus on transmission channels:
Inflation trend and what is driving it (demand vs trade-price effects)
Energy risk as a macro variable, not a headline
Trade route uncertainty as an input-cost lever
Policy language, not just policy decisions
Closing
The recent data improves the surface narrative.
The geopolitical layer complicates the base reality.
This is the defining pattern of the modern cycle: disinflation on paper, friction in the system.
The response remains unchanged: fewer moves, better moves, and structure over momentum.
— Bocan & Co
