How High Oil Prices Are Affecting Global Inflation, Home Loans, and Daily Expenses
The Ripple Effects of Rising Oil Prices on Economies and Households
By Seher Dareen and Anushree Mukherjee
LONDON, Oct 22 (Reuters) - The shock of oil prices at a five-month high of $110 a barrel and gas prices in Asia and Europe hitting their highest levels since December 2022 is making its mark on household budgets.
As well as raising the costs of transport and heating, it adds to pressure on food, clothing and packaging prices and contributes to elevated levels of inflation and borrowing costs.
The following graphics illustrate some of the ways in which the rally is having an impact on daily life around the world.
Impact on Fuel and Transportation Costs
Record Diesel Prices and Government Responses
The Iran war has already pushed global diesel prices to record highs. Average British diesel pump prices hit £2.00 ($2.64) per litre for the first time this month and US prices hit a record of $6.53 a gallon in September.
In response, US President Donald Trump has allowed red-dyed diesel, which is used in equipment and vehicles that are not usually operated on public roadways and is exempt from highway taxes, to be accessed by anyone until the end of the year.
Rising Inflation and Borrowing Costs
Central Banks and Interest Rate Hikes
The impact extends to mortgage rates as energy prices contribute to rising inflation, which major central banks are attempting to rein in by raising interest rates.
British inflation and borrowing rose more than expected last month. The increase in August, which the Office for National Statistics said was due to higher petrol and diesel costs, took inflation to its highest since October 2025.
The Reserve Bank of Australia raised its cash rate to a 15-year high last month, leading the country's mostly variable housing loan rates to rise in tandem, weighing on home prices.
Effect on Home Loans in Australia and the United States
When buying a house with an average loan of A$731,000 ($513,966) on a 30-year mortgage, a rise in interest rates from 5.5% in 2025 to 6.2% now raises annual repayments by around A$3,900 ($2,742).
Meanwhile in the United States, mortgage purchase activity has weakened as 30-year mortgage rates climbed from around 6.1% to about 7.5%, increasing borrowing costs for prospective homebuyers. Most people opt for fixed rates.
Heating and Household Expenses
Rising Heating Bills in the US and UK
Other parts of household budgets also suffer, particularly those relying on heating oil for winter.
In the state of New York, heating bills will likely rise by 47% from last year, National Energy Assistance Directors Association data shows.
In Britain, where gas is the main fuel used for heating, households could see a 10% year-on-year rise in bills this quarter, EnergyUK estimates.
Broader Effects on Consumer Goods and Food Prices
Packaging, Plastics, and Clothing Costs
Since most plastics are made from oil or natural gas and then converted into polymers for making everything from bottles to sneakers, as well as polyester fabric for clothing, the increase in crude prices is having a wider effect.
For common grocery items, packaging of any type, whether plastic, paper or glass, typically represents 5% to 15% of a product's manufacturing cost, according to consultancy MAT.
US plastic prices rose 7% in August versus October 2025. In the US, consumer prices accelerated in September, with a surge in gasoline prices accounting for more than half of the rise.
Global Food Inflation and Supply Chain Disruptions
Global food inflation is poised to accelerate further and persist well into 2027 on shipping disruptions and higher costs for fertiliser, which is also made from natural gas, data from the United Nations' Food and Agriculture Organization showed.
($1 = 1.4223 Australian dollars)
(Reporting by Seher Dareen in London, Anushree Mukherjee in Bengaluru, Stella Qui in Sydney, Suban Abdulla and Richa Naidu in London; Additional reporting by Anajan Anil in Bengaluru and Marta Noguiera in Rio de Janeiro; Editing by Alexander Smith)
