While the hike in oil prices strongly revives the budget revenues of Kuwait, which has been suffering from consecutive deficits for nearly 7 years, it seems that the path to record prices will not be in one direction.
The unpleasant surprise here is that whenever the price of oil rises, there will be a parallel rise in the prices of food and consumer goods, which makes the hypothesis that markets will move in the coming period to a more severe inflation wave, given that energy prices are related to the manufacture and supply of all commodities, says a local Arabic daily.
As a result, the double revenue that the general budget will derive from the restoration of oil to its historical levels, after Brent was close $120 a barrel, compared to the lowest level it reached in the last 20 years at $15.98, specifically on April 19, 2020, accelerated the pace of the rise in food and consumer prices, taking into account that it has recently recorded unprecedented rates, since the collapse of global financial markets in the mid-1980s.
The high cost of fuel, in turn, puts pressure on the overall prices, which nonetheless poses a danger to the consumer, amid the rising costs of transportation, which have affected the various sectors, especially food and consumer goods of all the sectors
As a result, every home in Kuwait and around the world began to feel the high prices, which some described as crazy, driven by the impact of political tensions, and before that the Corona pandemic, whose repercussions were the interruption of global supply chains at times, and their slowdown at other times, which eventually led to strengthening the course of transportation and insurance costs, some of which have recently grown at rates that have reached tens of times their previous prices.
It is noteworthy to make a mention that the International Monetary Fund had warned earlier of the rise in the prices of commodities and foodstuffs during the coming period, especially with the emergence of some indicators confirming the rise in inflation rates, noting that the local inflation records rose last January to 4.3 percent on an annual basis, according to data issued by the Central Department of Statistics.
Considering that Kuwait is an importer in the first place of all major commodities, especially food, construction materials, and electronic devices, everyone should prepare for a new wave of inflation, which will most likely not be temporary, but rather extended, supported by what is happening with companies and the pricing mechanism globally. Of course, these expectations will remain present until the changes in data and facts that could curb the acceleration of inflation globally.
It is clear that the stage of high prices to worrying levels will be long, and this was confirmed by international experts, as they expected more price increases and their continuation, and what reinforces these expectations is a combination of unprecedented factors that disturb the atmosphere of inflation, not least that the recovery of supply chains, and their return to normal, needs 3 years according to the estimates of international institutions.
Government sources have ruled out the option of granting any additional subsidies to citizens in the coming period, in the face of the current wave of price hikes, whether in cash, or by increasing the food and quantities or construction supplies. The sources said that the current network of subsidies is in line with the liquidity conditions of the General Reserve Fund, and the recorded deficit, despite its decline compared to the rates achieved last year, noting that the support currently provided for major commodities will remain at its rates, which are very reliable in calming prices.
Amid the continuing repercussions of the Corona pandemic, even if its fears have decreased, and the concern has increased over the escalation of the dust of the Russian-Ukrainian war and the possibility of it turning into a third world war, concern is growing in the oil-importing markets, about its continued rise, and as a traditional attempt, energy importers will resort to increasing the demand for oil for the purpose of storing it, to reduce opportunities exposure to a crisis in the future, which predicts an additional jump in its prices, especially in light of OPEC maintaining its plans regarding its production ceiling, while the Russian pumping shrinks.
At the same time, most governments and companies importing food and consumer goods will adopt the same behavior, by increasing their storage rates of these materials and for the same reasons, which will inevitably lead to an increase in their demand rates, in exchange for a decrease in the level of supply globally, and then the chances of exposure to the risks of new waves of price increases will increase.
Practically, companies around the world will have to transfer the burden of the difficulty of controlling transportation costs to the consumer’s “pocket.” With the continued rise in supply chain costs, it is not hoped that these companies will be obligated to ensure the stability of markets locally.