<\/p>\n
The Iran conflict will see reduced oil supply and higher inflation. Picture: Fadel Itani \/ AFP)<\/p>\n
ANALYSIS<\/p>\n
Not long after the US and Israel began their strikes on Iran over the weekend, huge queues began to form at Australian petrol stations, as we rushed to fill our cars before Middle Eastern conflict translated into higher oil prices.<\/p>\n
Iran only produces about 3 per cent of the world\u2019s oil, but around 20 per cent of the world\u2019s crude is shipped through a narrow waterway in the Persian Gulf known as the Strait of Hormuz.<\/p>\n
Restricted access to that route would mean a shortage of oil supply, which means rising prices. As a rule, a US$10 a price per barrel oil increase usually translates to about a 10 cent per litre price hike at the bowser.<\/p>\n
As it turns out, merely the speculation was enough to have an effect, with oil prices having already soared by 8 per cent by Monday. <\/p>\n
And Australian petrol prices have already skyrocketed.<\/p>\n
MORE: Home insurance costs soar <\/a><\/p>\n Despite, as economist Saul Eslake noted on ABC radio, there\u2019s no way the petrol \u201cthe service stations are selling now has come from the Middle East at elevated prices\u201d, the flow-on effect into Australian inflation has already begun.<\/p>\n And now, we wait to see how the RBA responds.<\/p>\n US President Donald Trump is overseeing \u2019Operation Epic Fury\u2019 against Iran. Picture: Daniel Torok, The White House, AFP.<\/p>\n You may feel that a rise in petrol prices does not warrant a rate hike on its own, especially as US President Donald Trump hopes to have the conflict over and done with quickly. But a rise in oil prices will filter all the way through the Australian economy.<\/p>\n Wide-ranging CPI effects<\/p>\n The Australian Bureau of Statistics (ABS) produces a monthly Consumer Price Index (CPI), which is used by the RBA to gauge inflation levels and inform its rate decisions.<\/p>\n In this, higher fuel prices shows up under transport costs. Fuel makes up only a few percentage points of the CPI, but oil underpins much more than just petrol.<\/p>\n It also inflates freight and logistics, pushing up the cost of moving goods from warehouse to doorstep.<\/p>\n<\/p>\n