Investors drawing parallels between the current spike in energy prices and the shocks of 2022 have been met with a counterargument from JPMorgan's equity strategists. While the US/Israel-Iran conflict and climbing crude have raised geopolitical concerns, the bank's team says the macroeconomic backdrop today differs in several important ways from the period following Russia's invasion of Ukraine.
Wages and inflation dynamics
At the center of JPMorgan's case is the labor market. The strategists, led by Mislav Matejka, highlight that a key driver of the 2022 inflation surge was sharply accelerating wage growth in the wake of Covid-related labor market distortions. That dynamic helped sustain elevated inflation and pushed central banks into aggressive tightening.
"This is not the case at present, where most wage data has been trending lower," the team wrote, arguing that it is difficult to see a wages-prices stagflationary spiral taking hold in the current environment.
Where central banks stand
JPMorgan also points to a different policy starting point for central banks. Entering 2022, policy rates at both the Federal Reserve and the European Central Bank were well below neutral and officials were still inclined to treat inflation pressures as transitory. By contrast, the bank says, policy rates today are broadly in line with historical norms and the yield curve has reverted to its long-run average after years of inversion.
Markets have moved to price in additional tightening from the ECB and the Bank of England since the conflict began, but the strategists cautioned that "any early hikes would likely be viewed as a policy mistake."
Consumers and corporate pricing power
The consumer landscape has also shifted since 2022. That year was characterised by strong pent-up demand and sizeable Covid-era cash balances that helped household spending remain robust even as prices rose. Corporate pricing power was comparatively strong, enabling wider pass-through of higher input costs to consumers.
The team notes that "that might not be the case" in the current environment, implying weaker consumer resilience and less room for firms to offset cost pressures with higher prices.
Growth momentum and Europe's energy preparedness
JPMorgan draws attention to differences in activity and energy infrastructure. The strategists observed that current growth momentum is softer than in early 2022: Eurozone momentum entered 2022 at over 4%; it stands at around 1% now. Europe has also bolstered its energy capability - LNG terminal capacity has roughly doubled since 2021 - and the acute supply constraints that amplified the 2022 shock, such as low coal stores or offline French nuclear units, are less evident today.
AI as a wildcard
The team flagged artificial intelligence as a potential wild card. Rising concern about AI's effect on employment, combined with already-soft labour market sentiment, points more toward a deflationary outcome than a stagflationary one, the strategists wrote. They described this contrast as "one of the crucial differences between a stagflation and a deflation narrative taking hold."
Market reaction so far
On equity markets, JPMorgan noted that European stocks have already fallen 11% on a gas price move that was roughly one-quarter the size of the 2022 spike. The strategists interpret that as markets pricing in considerably more pessimism relative to the underlying energy shock than they did four years ago.
Overall, JPMorgan's analysis does not deny the risks posed by higher energy prices or heightened geopolitical tension. Rather, the bank argues the structural and cyclical conditions that aggravated the 2022 shock - notably accelerating wages, an earlier policy starting point for central banks, strong consumer cash buffers, and acute European supply vulnerabilities - are materially different today. These distinctions lead the team to conclude that a repeat of 2022's combination of wide inflation persistence and aggressive policy tightening is not the most likely path given current signals.