Economist warns of higher living costs as Strait of Hormuz tensions threaten oil supply
The Director and Chief Economist of Econometrix, Azar Jammine warned that South Africans should prepare for higher living costs as geopolitical tensions around the Strait of Hormuz continued to threaten global oil supply chains.
A sharp increase in fuel prices is likely next month, driven by ongoing uncertainty around the passage of ships through the Strait of Hormuz.
The Strait is a critical route through which a significant share of the world’s oil and gas flows, and any disruption can quickly ripple through global markets.
According to Jammine, consumers were already feeling the impact at the fuel pump.
“Obviously, the biggest and the most immediate increased cost is fuel,” adding that petrol and diesel price hikes tend to come through quickly when global oil prices rise.
ALSO READ: Fuel prices to remain high despite ceasefire, economist warns
He cautions that the impact does not stop there. As transport and production costs increase, food prices and other essential goods are also expected to follow.
“If you get shortages of fertiliser and higher fertiliser costs, the inflation rate of food will rise sharply,” he explained.
Jammine also warned that inflation, which had recently eased, could climb again depending on how long disruptions persist in the Middle East.
“What it means is inflation, which we had been hoping would come down to 3%, and well, it has been close to 3% until recently, and we were hoping it would remain at that level going forward. Consumers are now going to be faced with inflation of 4%, 5%, or 6%, depending upon how long the Straits of Hormuz remain closed. So, depending on what salary increase they get, they will have less money available to spend on everything else,” he explained.
For South African households already under financial strain, Jammine urged that they remain cautious and prepared.
“They should be just prepared for it in terms of their budgeting processes.”
