Central Banks Warn of Inflation Risks from West Asia Conflict

Central banks in India and South Africa are warning that the conflict between the United States, Israel, and Iran is creating significant inflationary risks and the potential for global stagflation. Sanjay Malhotra, Governor of the Reserve Bank of India, stated that while initial supply shocks are concerning, the primary danger lies in supply chain disruptions becoming embedded in general price levels. He noted that West Asia accounts for half of India's crude oil and two-fifths of its fertilizer imports, leading the RBI to adopt a wait-and-watch mode while maintaining a neutral policy stance and a repo rate of 5.25%.

Similarly, the South African Reserve Bank reported that the conflict has created material upside risks for its inflation trajectory. The bank projects headline inflation to average 3.7% this year, shifting market expectations toward two interest rate hikes instead of previously anticipated cuts. Officials identified a severe scenario where oil prices remain above $97 per barrel, which would jeopardize the inflation target.

South African Reserve Bank Governor Lesetja Kganyago confirmed that the bank will not alter its medium-to-long term inflation target of 3% despite oil prices breaching $100 a barrel. Acting head of economic research Theo Janse van Rensburg added that rising fuel and fertilizer costs are expected to drive up food prices, further complicating monetary policy as the conflict evolves.