If the conflict in the Middle East spreads, oil prices can increase and the fuel price will follow, meaning higher inflation again.
The Bureau for Economic Research at Stellenbosch University says while the humanitarian consequences on both sides of the conflict are heartbreaking, financial markets are also affected.
The Bureau for Economic Research at Stellenbosch University says while the humanitarian consequences on both sides of the conflict are heartbreaking, financial markets were also affected. The uncertainty caused by the conflict also saw a flight to perceived safe-haven assets and this supported the gold price, which gained almost 5% over the week. Pienaar says it is important to note that global bond yields moved lower after a relentless rise in recent months.
“The price of Brent crude oil climbed over the past week, hitting around $91 at one stage amid rising concerns that disruptions to supply from the region could conceivably push prices much higher in the future. After all, tensions in the region caused global oil prices to climb substantially in the past. The 1970s was the most dramatic example when prices quadrupled as the region descended into war.
“Those lingering concerns about ingrained inflation would also delay the eventual pivot to rate cuts until later in 2024, meaning that monetary policy is more restrictive throughout next year. Tighter monetary policy and a squeeze on households from higher commodity prices would result in slower growth, creating a stagflationary outcome,” Rees says.
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