ECONOMISTS have warned that a third wave of inflation is looming after oil prices spiked following Hamas’s deadly attack on Israel.
The price of Brent crude surged again on Monday to hit $89 a barrel at one point amid fears that the war will escalate tensions in the Middle East, potentially triggering sanctions and supply shortages.
European gas prices also surged as much as 17% at one point yesterday after Israel ordered Chevron to suspend production at the country’s Tamar field amid safety concerns.
The jump in energy prices rippled through he London Stock Exchange yesterday, with shares in bp and Shell both rising by nearly 3%.
Economists are also worried about the threat of a global recession in the event that the US and Saudi Arabia are further drawn into the turmoil.
Israel is not an oil producer but there are concerns over Iran’s involvement in Hamas’s shock attack on Saturday which saw 250 people killed. If the US tightens sanctions on Iranian oil exports, this would have a major impact on global supply.
There is also a risk of growing tensions between Saudi Arabia and Iran, according to the Telegraph.
A third wave of inflation would follow the post-Covid supply chain disruptions which triggered the first wave, and the war in Ukraine and ensuing energy crisis which brought the second.
Oxford Economics said that if oil prices climbed to $95 and stayed at this level, 0.4 percentage points would be added to the global rate of inflation in 2024. This would indicate a global inflation rate of 4.6pc, based on its current forecast of 4.2pc. If the oil price rose to $110, this would take global inflation next year to 5.1pc.
In the UK, a $95 oil price would add 0.2 percentage points to consumer prices, forecasters said, bringing the rate up to 3.4pc. If oil prices rise to as much as $110, UK inflation rate is forecast to rise to 3.7pc.
Ben May of Oxford Economics said: “It could sort of put upward pressure on inflation expectations and lead to core inflation being a bit stickier in the short-term and wages being a bit stickier.”
George Lagarias, chief economist at Mazars consultants, said: “With crude near $90 again, we are risking a third wave of inflation. This could result in prolonged inflation, rates going higher or remaining higher for even longer than anticipated and growth suffering.”