{"id":936051,"date":"2026-10-21T20:06:18","date_gmt":"2026-10-21T20:06:18","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/936051\/"},"modified":"2026-10-21T20:06:18","modified_gmt":"2026-10-21T20:06:18","slug":"reserve-bank-and-interest-rates-food-inflation-is-a-bigger-issue-than-oil-and-the-rba-knows-it","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/936051\/","title":{"rendered":"Reserve Bank and interest rates: Food inflation is a bigger issue than oil and the RBA knows it"},"content":{"rendered":"

Opinion<\/p>\n

\"ShaneShane Wright<\/a>Senior economics correspondent<\/p>\n

October 22, 2026 \u2014 5:00am<\/p>\n

October 22, 2026 \u2014 5:00am<\/p>\n

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If you love chocolate or you are on the Reserve Bank\u2019s interest rate setting committee, turn away now.<\/p>\n

Just before Donald Trump\u2019s ill-advised attack on Iran, cocoa beans were selling for just under $US2900 ($4140) a tonne.<\/p>\n

Last week, a tonne of cocoa beans was being sold for more than $US5600.<\/p>\n

\"PoorPoor weather in West Africa has pushed up cocoa prices, which is not a good sign for chocolate lovers.Bloomberg<\/p>\n

Heavy rainfall<\/a> across the Ivory Coast, the world\u2019s largest cocoa bean producer, upset local harvests and transport. That rainfall followed below-average rain which had stressed (and reduced yields) from the plants that, to many chocolate addicts, make the world go round.<\/p>\n

Not only have prices almost doubled since February, there are growing concerns that the super El Ni\u00f1o which is affecting global weather patterns will bring drier conditions to West Africa for the coming season while contributing to floods across key Latin American coffee producers.<\/p>\n

It\u2019s not just cocoa beans on a tear.<\/p>\n

Global rice prices have soared by 63 per cent since February. Exports out of India, which accounts for 40 per cent of the global rice trade, are expected to fall 4 per cent<\/a> in the coming year while its total output is forecast to be down almost 5 per cent because of a weak monsoon.<\/p>\n

Prices<\/a> for oats and sugar are up by more than 30 per cent. Wheat is up by 31 per cent, canola by 30 per cent, soybeans by 24 per cent and corn by 12 per cent. Arabica coffee beans have also surged by 29 per cent since June.<\/p>\n

Global cheese prices are down by 7 per cent year-on-year, but they have lifted by 15 per cent since the war against Iran started.<\/p>\n

Related Article\"<\/a><\/p>\n

From bread to biscuits, cornflakes to coffee, global food prices have climbed exceptionally<\/a> quickly this year. And it will all translate into more expensive dinners, lunches and breakfasts across the world.<\/p>\n

Throughout this year, the Reserve Bank \u2013 along with every other central bank \u2013 has struggled to deal with the re-emergence of inflation.<\/p>\n

There is a range of reasons for that spike in prices.<\/p>\n

Government spending is clearly not helping (the US is about to register a $US2 trillion deficit<\/a> or 6 per cent of American GDP).<\/p>\n

Here in Australia, loose federal fiscal policy (a deficit in the just finished financial year of 0.8 per cent of GDP after a 0.4 per cent shortfall in 2024-25) is adding to economy-wide demand pressures.<\/p>\n

In a moment of \u201chold my beer\u201d, the states and territories are making the situation far worse. For instance, the promises over the past week out of the Victorian Labor and Liberal parties on road tolls and public transport fares are extraordinarily economically reckless.<\/p>\n

Government spending is increasing during a period of flat or falling productivity and a surge in expenditure by companies on AI which is approaching mining-boom levels. That will always end in inflationary tears.<\/p>\n

But the biggest driver of the inflationary surge has been high oil prices unleashed by the war against Iran.<\/p>\n

For those who might have forgotten, domestic petrol prices jumped by a third in March when Brent Crude jumped<\/a> from less than $US70 to $US112 a barrel. There was respite through the middle of the year but Brent is back at nearly $US110 a barrel.<\/p>\n

The jump in oil prices fed directly into a key part of the agricultural production chain: fertiliser. They surged in the weeks after the war but eased through to June. Since then, they have pushed up by more than 30 per cent.<\/p>\n

Related Article\"Commonwealth<\/a><\/p>\n

Oil is vital to farming. But good weather is more important. And we\u2019re now seeing the inflationary fallout from the current super El Ni\u00f1o.<\/p>\n

The European summer was a scorcher with temperature records broken from Malaga in southern Spain to Moscow in Russia. London\u2019s traditionally green parks looked more like Benalla or Dubbo in mid-January.<\/p>\n

It wasn\u2019t just the northern hemisphere feeling the heat. Victoria, NSW and Tasmania had their warmest Augusts on record. September was little better, the third-hottest on record with minimum temperatures nationally at an all-time high.<\/p>\n

This is all being watched closely by the Reserve Bank which knows that a spike in food prices is their next inflation headache.<\/p>\n

Bank critics have noted that higher interest rates will do little to bring down the price of oil. The same argument holds for expensive bread, jam and hamburgers.<\/p>\n

In fact, food inflation is an even bigger problem for the Reserve Bank than oil.<\/p>\n

We know that consumers and businesses are adapting to high-priced fuel. The surge in EV purchases and the rollout of batteries by households and businesses is evidence, if any were ever needed, that a big price signal can change long-term spending patterns.<\/p>\n

But it\u2019s much tougher to change the population\u2019s eating habits.<\/p>\n

Related Article\"Cups<\/a><\/p>\n

You can ask the population to forego a holiday or extra presents at Christmas to help bring down inflation. However, driving up interest rates so they forego a meal is Dickensian.<\/p>\n

The bank has expressed concern that high inflation hurts those on the lowest income the hardest.<\/p>\n

Who spends the greatest proportion of their income on food? Low-income earners.<\/p>\n

It\u2019s not impossible to imagine RBA governor Michele Bullock using a press conference early next year to announce a lift in interest rates in part to deal with inflation on the nation\u2019s supermarket shelves.<\/p>\n

Equally, it is possible to imagine the public\u2019s response to a governor trying to justify those higher interest rates to deal with something so completely out of the bank\u2019s control \u2013 the weather and its impact on food production.<\/p>\n

Telling a hungry public that can\u2019t afford its daily coffee fix that interest rates are the only lever it has to deal with inflation would not go down well at all.<\/p>\n

Without a break in the weather, the coming months could be the ultimate test for Bullock and her team at the Reserve Bank.<\/p>\n

Shane Wright is a senior economics correspondent.<\/p>\n

The Opinion newsletter is a weekly wrap of views that will challenge, champion and inform your own. Sign up here<\/a>.<\/p>\n

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Close\"ShaneShane Wright<\/a> is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X<\/a> or email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"Opinion Shane WrightSenior economics correspondent October 22, 2026 \u2014 5:00am October 22, 2026 \u2014 5:00am Save You have…\n","protected":false},"author":2,"featured_media":936052,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-936051","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/936051","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=936051"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/936051\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/936052"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=936051"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=936051"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=936051"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}