Stagflation Risks Building

Research evidence excerpt

Stagflation Risks Building

Idea

July 26, 2026 08:00 PM GMT

Morgan Stanley Australia Limited+MAustralia Macro+ Week Ahead | Asia Pacific Chris Nicol

Equity Strategist

Stagflation Risks Building Chris.Nicol@morganstanley.comChris Read +61 3 9256-8909

Equity Strategist and Australia Economist

Chris.Read@morganstanley.com +61 2 9770-1513

The interplay of global and domestically sourced macro risks Antony Conte

have tipped Australia into a position where the outlook is one of EquityAntony.Conte@morganstanley.comStrategist +61 2 9770-1544

rising stagflationary risk. A prolonged period of such risk is not Isabel Black

fully in the market price. We look at the case for and against a Isabel.Black@morganstanley.com +61 2 9775-2519

more entrenched stagnation evolving.

What's Topical? Double Trouble: Australia is facing an uncomfortable mix of

softening growth and persistently high inflation – an emerging stagflationary

backdrop that may intensify through 2026. We see stagflation as a period where

supply-side pressures keep inflation elevated even as demand weakens, limiting the

RBA’s ability to respond initially and posing underappreciated risks for equity Exhibit 1 : Macro catalysts for the week

markets. Key drivers include higher oil prices and Australia’s reliance on imported ahead

fuel, elevated labour costs amid weak productivity and a softer Australian dollar MondayRelease27 July Period MSe Consensus Prev.

adding to imported inflation. At the same time, prolonged inflation above target TuesdayAU Speech28 Julyby Michele Bullock, RBA Governor, at the Anika Foundation Fundraising Lunch, Sydney

risks entrenching expectations, embedding higher wage and pricing behaviour WednesdayAU CPI 29 July 2Q 4.0%Y 0.7%Q, 4.0%Y 1.4%Q, 3.2%Y

despite weakening demand.