Middle East conflict could lead to higher inflation

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Middle East conflict could lead to higher inflation

On Wednesday, economists issued a warning that the prolonged crisis in the Middle East would cause inflation to increase even more over the coming few months.

The headline consumer price index (CPI) increased to 5.4% in September from 4.8% in August, matching the level from June of this year.

According to Stats SA, the largest contributors were housing and utilities, miscellaneous products and services, and food and non-alcoholic beverages, which climbed 8.1% year over year.

The continuous confrontation between Israel and Hamas, according to Econometrix analyst Dr Azar Jammine, has the potential to increase global oil prices, which would directly affect the prices South African consumers pay for goods and services.

“Certain people spend more money on fuel than others. Those who have to travel long distances to work will feel the pinch more than others. It is difficult to say that there is any particular sector that will feel the pinch more than others.

The most obvious risk right now is the higher oil prices emanating from the problems in the Middle East.”

Jammine urged consumers to try to limit their debt as much as possible during this period.

“If you have less disposable income following the rise in general prices, especially fuel prices and have less money available to spend on everything else, then you are obliged to pay the interest on your debt, which will lead to even less available money to spend on other goods or services you require,” he said.

At the same time, Koketso Mano, senior economist at FNB, warned that there is a possibility of headline inflation increasing further to 5,6% in October due to higher fuel prices.

“The avian flu outbreak that has primarily affected the supplier of eggs and would likely spill over to chicken towards the end of the year should keep food inflation elevated. Furthermore, the undervalued exchange rate should continue to be the source of upward pressure on your broader imported inflation.

“Overall, we see headline inflation averaging around 6% this year before falling firmly towards the target in 2026. Headline inflation around the globe is expected to be persistent going into 2024, and that should maintain upward pressure on interest rates,” said Mano.

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