Renewed US-Iran fighting could push inflation higher again, economist warns
An economist warns renewed conflict between the US and Iran could raise oil prices, fuel inflation and influence South Africa’s interest rate outlook as the Reserve Bank prepares to announce its latest repo rate decision.
An economist has warned that renewed fighting between the United States and Iran could have a ripple effect on South Africa.
South Africans are awaiting the repo rate decision, which is due to be announced by the Reserve Bank’s Monetary Policy Committee on Thursday.
The repo rate currently stands at 7%, while the prime lending rate is 10.5%.
Sanlam economist Patrick Buthelezi says the renewed hostilities between the US and the Islamic Republic have already reversed the recent decline in global oil prices and disrupted international shipping routes.
ALSO READ: Iran targets US military assets as Houthis threaten to expand Mideast war
Iran stepped up its attacks in the Middle East on Tuesday, two weeks after its war with the United States resumed, with sirens sounding in Bahrain and Jordan announcing it had intercepted two waves of missiles and drones.
Iran's Yemeni allies, the Houthis, declared they would blockade Saudi Arabia's ports, in what would throw the world's energy markets into further chaos after the Islamic Republic blockaded the crucial Strait of Hormuz.
Following the deaths of at least three US soldiers in the past several days, the United States launched a new round of attacks against Iran on Monday, which it said were "designed to further degrade Iranian military capabilities used to attack commercial shipping" in the Strait of Hormuz.
US President Donald Trump warned that Iran would pay "many times over" for every American soldier killed, while Iranian President Masoud Pezeshkian said the conflict had become "a full-scale war".
Buthelezi warns that a prolonged conflict could place further strain on global supply chains and push inflation higher.
“International oil prices have spiked, but nothing compared to the highs reached during the height of the conflict,” says Buthelezi.
“A prolonged conflict will eventually weigh on inventories, which provided the cushion when the conflict started. The global growth resilience led mostly by strong demand for artificial intelligence and continued improvements in its adoption will be tested this year, not only by higher energy prices, but also by higher tariffs.”
While South Africa is expected to benefit from ongoing economic reforms, Buthelezi says growth is likely to remain modest.
He adds that central banks, including the US Federal Reserve, are expected to remain cautious and could keep interest rates higher for longer if inflationary pressures persist.
