Oil Price Surge and AI Boom Spark Global Inflation Fears

The global economy is facing renewed inflation fears due to higher oil prices and an AI boom. The US Federal Reserve had expected to lower interest rates back to neutral levels, but rising inflation above 4% in May has pushed Treasury 10-year bond yields up by 40 basis points since the start of the year.

Fitch Ratings raised its forecast for the 2026 annual average oil price to $87 per barrel, a 27% increase from last year's average. The sharp rise in oil prices in March was cushioned by inventory drawdowns and rising production outside the Gulf.

The AI boom has supported growth through increased IT investment, which reached $1.6 trillion (annualized) in 2026Q1, surpassing the previous peak of 4.5% of GDP in late 2000. However, this surge in capital-goods imports dragged on growth from net trade in 2026Q1.

The oil-price shock has also dampened prospects for a recovery in the eurozone, with Fitch revising down its forecast for the four largest economies (Germany, France, Italy, and Spain) to 0.9% this year.