Middle East conflict may intensify SA’s cost-of-living crisis

Economists have warned that if the Middle East conflict persists, broader cost-of-living pressures will intensify.

Oil prices are experiencing significant volatility, with sharp increases recorded since the beginning of March.

Patrick Buthelezi, an economist at Sanlam Investments, said oil prices tend to rise during geopolitical instability.

“[This is] because markets react to the risk of supply disruptions. Even the threat of reduced supply, such as conflict near major oil-producing regions or key shipping routes, can trigger price increases,” said Buthelezi.

“In the case of the Middle East, the Strait of Hormuz is a critical chokepoint through which roughly a fifth of the world’s oil supply passes. Any disruption, whether actual or anticipated, creates uncertainty in global markets. Traders and suppliers price in this risk, which pushes oil prices higher.

“Additionally, logistical challenges, increased insurance costs for shipping, and rerouting of supply chains all add to the upward pressure on prices.”

This will place additional strain on household budgets and may also limit the scope for interest rate cuts, keeping borrowing costs relatively high.

—  Patrick Buthelezi, Sanlam Investments economist

Momentum financial adviser Ross McMillan said many tend to see geopolitical problems as something that happens far away from them.

“Tensions involving things like borders or disputes over natural resources [may be] taking place at the other end of the world, [but] the reality is far more personal for the average South African household,” said McMillan.

Buthelezi said SA was starting to feel the impact, and if the war persists, it will increase the cost of living.

“Fuel prices have already increased, and further significant hikes are expected in the coming months,” he said. “These increases are starting to feed into higher transport costs, which in turn raise the price of goods and services across the economy. Airlines, for example, have begun introducing higher fuel surcharges, making travel more expensive.”

Sowetan last week reported that the latest daily data from the Central Energy Fund showed the price of 93-octane petrol could climb by around R4.27 a litre, while 95-octane petrol could increase by about R4.74 a litre.

Building a resilient financial future requires understanding these macro forces and how you should – or should not – respond.

—  Ross McMillan, Momentum financial adviser

There were even higher prices predicted for diesel users, with the wholesale price of 50ppm diesel projected to rise by R7.83 a litre and 500ppm diesel by R7.73 a litre

“Higher oil prices increase transport and production costs across almost every sector, while rising fertiliser prices push up food production costs. These increases filter through to consumers in the form of higher fuel prices, more expensive groceries, and broader inflation,” said Buthelezi.

“For countries like South Africa, which rely heavily on imported oil and fertiliser, the impact is even more pronounced. Ultimately, this reduces households’ purchasing power and puts pressure on already stretched budgets.

“The full impact will become more evident over the next few months as higher fuel and fertiliser costs filter through to food prices and general inflation. This will place additional strain on household budgets and may also limit the scope for interest rate cuts, keeping borrowing costs relatively high.

“While the initial effects are already visible, the broader cost of living pressures are likely to intensify if the conflict persists.”

McMillan said when global tensions flare, they don’t just stay on the news.

“They travel across oceans and through supply chains, eventually impacting your monthly budget. Building a resilient financial future requires understanding these macro forces and how you should — or should not — respond.

“Inflation is the silent tax of geopolitics. A resilient financial plan accounts for the fact that R1,000 today will not buy the same amount of goods in three years.

Sowetan