Oil Price Surge Sparks Warning Of Another Inflation Shock
South Africans could face another round of price increases if international oil prices remain above $100 a barrel, an economist has warned.
Brent crude is currently trading at around $101 a barrel amid the ongoing conflict in the Middle East and the closure of the Strait of Hormuz.
KPMG lead economist Frank Blackmore said the impact of higher oil prices could extend beyond the petrol station, with rising diesel costs potentially pushing up the cost of transporting goods.
Fuel Prices Could Drive Broader Inflation
Blackmore said the bigger concern was the so-called second-round effects of higher fuel prices.
Businesses facing increased transport and operating costs could pass those expenses on to consumers through higher prices.
At the same time, workers could demand higher wage increases to compensate for the rising cost of living.
“When you see prices going up around this four to five percent level, you’re not going to negotiate three percent, which is the target inflation rate for yourself for next year. You are probably going to try and negotiate something closer to that five percent level to compensate for the increase in costs,” Blackmore said.
He added that core inflation had already increased from 3% in February to 4.2% in July.
Interest Rate Hike Risk
Blackmore warned that continued pressure from higher fuel and other costs could push inflation higher in August and September.
This, in turn, could increase the possibility of the South African Reserve Bank raising interest rates at its September meeting.
The potential increase in fuel-related costs therefore poses a broader risk to household budgets, business expenses and borrowing costs if oil prices remain elevated.