Fuel and grocery prices expected to stay high despite possible end to Middle East conflict
Even if the conflict in the Middle East ends tomorrow, Australian households will face months of higher fuel, shopping and interest costs, economists warn.
University of Sydney economics professor David Ubilava said fuel prices would likely fall once the conflict ended, but would not return sharply or completely to pre-war levels.
The increase in fuel costs during the war set off a chain reaction, with increased transportation, processing and storage costs expected to be reflected in groceries and other goods in the coming months.
“Gasoline prices have a forward-looking element; just as they rose sharply as soon as the war started, they will probably start to fall, although not as sharply and probably not to pre-war levels,” Dr Ubilava told NewsWire.
Although consumers may eventually see some relief, grocery prices are expected to rise more slowly as inflation, the rate at which prices rise, begins to accelerate.
“This is bound to happen as months of increased processing, transportation and storage costs, all due to fuel prices, will find their way onto market shelves,” Dr Ubilava said.
“Because on average prices always go up… The problem is that prices go up faster than desired, and that’s where we’re headed right now.”
Almost every fuel-based sector, from logistics to manufacturing, is expected to feel the impact.
The Central Bank has already begun to respond with interest rate increases affected by the conflict.
“Before the conflict, markets were predicting one or two increases in 2026, now that number has at least doubled,” Dr Ubilava said.
Even if shipping routes such as the Strait of Hormuz reopen quickly, it will take time for Australian drivers to relax.
Crude oil shipments from the Middle East must go to East Asia to be refined and then to Australia; This process may take weeks, if not months.
Global markets can also price in the risk of future conflict, keeping premiums and prices higher for longer.
The government has moved to ease the pressure by cutting fuel duty and securing supplies, but consumers may still need to adjust their behavior, such as driving less or opting for cheaper grocery options.
“Most people are rational and optimize their decisions subject to constraints,” Dr Ubilava said.
