Will fuel and the cost of living skyrocket? The European drama that could reach Israel

European markets are entering the weekend in a cautious atmosphere, as investors deal with a combination of economic weakness, high energy prices, and uncertainty regarding the continuation of interest rate policy. Developments on the continent are not limited to trading floors and could also reach the pocket of the Israeli consumer.

The pan-European STOXX 600 index fell by 0.2% to a level of 648.08 points. The German DAX index weakened by 0.1%, London's FTSE fell by 0.2%, and the French CAC 40 also lost 0.2%. The declines come as investors await the US employment report for August, a figure that may influence interest rate expectations in the United States and subsequently the global markets.

At the same time, Volkswagen shares stand out with a sharp rise of 5.7%. The rise in the stock comes against the backdrop of a challenging period for the automaker, which is dealing with American tariffs, stagnation in the European market, and increasing competition from Chinese manufacturers. Despite the jump, the stock is still down by more than 20% since the beginning of the year.

However, the bigger story is in the energy market. The price of a barrel of Brent crude oil is trading around 96 dollars and is on track for its sharpest weekly rise since mid-July. For Europe, which is heavily dependent on energy imports, this is a development that could weigh on economic activity and increase inflationary pressures.

The possible impact on Israelis begins with the price of fuel. When global oil prices rise, this may eventually translate into fuel prices in Israel as well, depending on regional fuel prices and the dollar exchange rate. The rise in energy costs also affects the production and shipping costs of products, and therefore may increase the pressure on the prices of goods imported to Israel.

Interest rates are also in the picture. According to a Reuters report, JPMorgan and BNP Paribas predict that the European Central Bank may raise interest rates by 25 basis points in December, following the rise in energy prices. At the same time, in the United States, developments in the labor market may also influence the decisions of the Federal Reserve.

For Israelis, a global environment of high interest rates makes the possibility of rapid interest rate cuts in Israel difficult. This may mean a longer period of high financing costs, including on loans and mortgages.

Thus, the declines in European stock exchanges and the crisis in the local industry may initially seem like a distant matter, but developments in energy prices, interest rates, and international trade may eventually trickle down to fuel prices, the cost of living, and credit costs for households in Israel.