The daily items that will get more expensive in Australia after the latest attacks on Israel

Australia’s cost of living crisis is set to worsen as terror attacks on Israel push up crude oil prices – triggering a potential rate hike with the local currency at its weakest level in a year.

Motorists, who already pay more than $2 a liter for unleaded E10 petrol, face even higher fuel charges as oil-producing countries benefit from geopolitical conflict in the Middle East.

This comes as a weak Australian dollar makes crude oil more expensive, which could exacerbate inflationary pressures and potentially lead to another interest rate hike by the Reserve Bank next month.

Iran, a major oil producer, has been linked to Hamas attacks in Israel that have so far killed more than 1,100 people, including more than 700 Israelis.

The militant group Hezbollah reportedly suggested that Iranian security officials approve the attack inside Israel by Palestinian militants, who paraglided from Gaza City over a fortified border wall before taking Israeli citizens hostage.

Even before the atrocities, gasoline prices had risen by 13.9 percent in the year to August, pushing the monthly inflation rate to 5.2 percent, from 4.9 percent in July.

Bread and cereal costs rose 10.4 percent, year-on-year, and more expensive transportation costs could add to already bad price pressures.

More expensive petrol could also reverse the recent slump in fruit and vegetable prices, after a weaker Australian dollar made electronics, clothing and cars more expensive in months.

Australia gets its oil from Singapore refineries, which import crude from Indonesia and Malaysia, two Muslim-majority countries.

But economist Saul Eslake, director of Corinna Economic Advisory, said oil-producing countries could “potentially” cut supply to exploit geopolitical tensions in the Middle East.

“The market itself can raise oil prices, anticipating something,” he told Daily Mail Australia.

“You expect oil prices to go up because of speculation.”

Higher petrol prices have wider and trickle-down effects on Australian inflation, as sellers of goods pass on higher transport costs to consumers.

“If wholesalers and distributors think prices are going to stay high, they will probably look to offset increased shipping costs by charging higher prices,” Eslake said.

This could see a repeat of early 2022, when Russia’s invasion of Ukraine led to sanctions that drove up global crude oil prices, leading to high inflation in Australia.

High inflation, from rising oil prices, could also lead to another interest rate hike in November, following the release of consumer price index data for the September quarter on October 25.

This would take the RBA’s cash rate to a 12-year high of 4.35 per cent and mark the 13th rate rise since May 2022, with home borrowers already facing the biggest increases aggressive since 1989.

“What will affect whether they decide to respond by raising interest rates is whether there’s been a pass-through from higher gasoline prices to the prices of other things that are transported or that use oil in them like plastics,” Eslake said.

Rising petrol prices also mean consumers expect inflation to remain high, which would worry the Reserve Bank, which already expects the consumer price index to stay above its target of three per cent until June 2025.

The Australian dollar last week fell below 63 cents for the first time in a year.

The unprecedented sacking of former Republican US President Kevin McCarthy by disgruntled members of his own party is also roiling financial markets, weakening the Australian dollar because its assets are linked to global risk appetite.

Eslake said the Australian dollar could fall below 60 cents for the first time since March 2020, at the start of the Covid pandemic, if the next Republican Party leader refuses to make a deal to resolve the debt ceiling crisis and cripple politically Democratic President Joe Biden while government services are closed.

“Although there is not normally a relationship between the fear index and the $A, when the fear index moves a lot, which it would if the financial markets were to seize, then the $A would almost certainly fall below 60,” he said. . .

A weaker Australian dollar also makes crude oil more expensive because it is sold in US dollars.

“An obvious one would be the magnified impact of rising crude oil prices,” Ms Eslake said.

“There are two things that determine the price of gasoline at the pump: the price of crude oil in U.S. dollars and the dollar rate.”

A weaker Australian dollar would also cause consumers to pay more for overseas holidays, immediately, and ultimately more for goods such as electronics, clothing and cars that are ordered in bulk months in advance.

‘This would be an immediate and visible impact; Overseas vacations would have an immediate impact; a wide range of consumer durables would appear after a delay of several months,” Eslake said.

The terror attack on Israel came close to the 50th anniversary of the Yom Kippur War caused by Egypt and Syria launching a surprise attack on Israel on a Jewish holy holiday.

While Israel quickly regained territory, OPEC countries cut off oil supplies to Western countries that had supported Israel, causing much of the developed world to experience double-digit inflation during the 1970s.

This time, the Muslim world is less united with Saudi Arabia, a major oil producer, in the process of formally recognizing Israel – a US-led effort that could still be derailed.

Mr Eslake said it made a repeat of the OPEC oil crisis of the 1970s unlikely, with the US now more self-sufficient in its crude thanks to fracking, while Canada is now the fourth largest producer. oil major in the world.

“The differences of opinion between Saudi Arabia and Iran are such that it would be difficult to bring together the alliance that led to the oil embargo in ’73-74,” he said.

Saudi Arabia and Iran are rivals for influence in the Persian Gulf region.

In 2023, Russia is closely tied to Iran, which was not the case 50 years ago.

But a protracted war between Israel and Hamas is also happening alongside a protracted war between Russia and Ukraine, meaning global inflation would stay higher for longer with crude oil suppliers among the players in a conflict.

“It would not be good for the world to have two important conflicts at the same time,” Eslake said.