Middle East tension risks higher inflation and food shortages
Just when we thought the cost-ofliving crisis was starting to ease, prices are going up AGAIN.
Conflict erupting across the Middle East has seen hopes of lower inflation dim this week along with hopes for quick reductions in energy and mortgage bills.
Inflation figures for December spiked to 4.6% annually in December – up from 3.9% only a month earlier.
And prospects for lower inflation won’t be helped by a flaring of conflict in the Middle East.
As a joint US-UK-led coalition hit Houthi bases in Yemen for a fourth time on Thursday, rebels vowed to continue attacks on ships attempting to enter the Red Sea en route to the Suez canal. Meanwhile, Iran bombed Syria, Iraq and Pakistan. On Wednesday another ship was hit and major shippers say they are now avoiding the Red Sea, adding more than 6,400km to routes between Asia and Europe. The resulting disruption to shipping could trigger yet another wave of price rises in Ireland, experts warn.
Households should brace for price rises and possible scarcity in every-day goods from food, drink, tobacco, and clothing, fuel costs and energy bills, as the conflict creates supply issues.
Some experts predict the crisis could add several percentage points to inflation.
Others were hopeful that the situation would ‘settle down’ but that seems unlikely as conflict across the region escalates.
Tesco chief executive Ken Murphy said: ‘If [shipping containers] do have to go the whole way around Africa… it extends shipping times, it constrains shipping space and it drives up shipping costs. That could drive inflation on some items.’
Goods from countries including Bangladesh, Vietnam, Thailand, Japan and Australia will be the worst affected, according to the Institute of Export and International Trade. Shoppers should expect shortages in items ranging from clothing and shoes to frozen shellfish, meat, mobile phones, cars, wine and tobacco.
Curry-lovers may find the price of a takeaway rises after warnings that the crisis will raise the global export price of rice by 15%-20%.
However, food products imported from the EU will not be impacted by the disruption. These include fresh fruit and vegetables, meat and dairy.
‘We’re working closely with our suppliers and colleagues to minimise the impact of recent disruptions to global shipping,’ said an Aldi Ireland spokesman. ‘Our commitment to our customers is that we will always offer top-quality products that offer a good discount versus the full-priced supermarkets.’
‘Supply chain issues’ will hit more than grocery supplies. ‘Everything we’ve got here from our mobile phone to this bottle of water I’ve got in front of me, it has been shipped – or components of them have been shipped – in the past day, week or year,’ Basil Germond, professor of international security at Lancaster University told RTÉ News this week.
Europe will be hit by ‘increased insurance costs for shipping companies, or the cost of rerouting ships via other routes’, he added.
This confirms warnings from a growing number of retailers as stocks dwindle. ‘Difficulties with access to the Suez Canal, if they continue, are likely to cause some delays to stock deliveries in the early part of the year,’ Next stated recently.
IKEA warned that some of its products could also be delayed.
Volvo has halted production of cars in some factories, while Tesla will stop making cars at its Berlin factory for two weeks due to a shortage of components that also threaten its promised €9,000 price cut.
Motorists could also face higher insurance premiums as replacement parts cost more. Insurance analyst Abid Hussain, of the investment bank Panmure Gordon, said: ‘We can expect car insurance premium increases following the Red Sea crisis as vehicle parts have to be re-routed or are delayed to avoid the region and extra costs get passed on to motorists.’