The reverberations of the Middle East war could be felt in Australian inflation figures, according to new advice from the Treasury.<\/p>\n
In analysis prepared for the government and seen by the ABC, the department predicts headline inflation will be 0.5 percentage points higher in the June quarter of 2026 if the crude oil price averages $US100 a barrel for three months.<\/p>\n
That level was well exceeded in the days following strikes by the US and Israel on Iran and the rapid escalation that followed. At the time of writing, the crude oil price sat about $US90 per barrel, still well above pre-crisis levels of $US70.<\/p>\n
In Treasury’s scenario, which assumes the price “unwinds quickly” after three months has elapsed, it is estimated that the price would result in a “temporary” 0.1 per cent hit to the level of economic output (real GDP).<\/p>\n
In a worse scenario where oil is $US120 a barrel for three months, and takes longer to unwind, Treasury predicts headline inflation would be a full percentage point higher and real GDP would be 0.3 per cent lower.<\/p>\n
Expectations build for second rate hike<\/p>\n
Markets expect<\/a> the Reserve Bank to raise interest rates for the second time in a row when its monetary policy board meets on Tuesday.<\/p>\n Though central banks often “look through” temporary changes to headline inflation, as the bank did when government energy bill relief added about 0.5 percentage points throughout last year, the elevated inflation prior to the war may favour caution.<\/p>\n Appearing on the Politics with Michelle Grattan podcast on Tuesday, the bank’s deputy governor, Andrew Hauser, made comments interpreted as a hint there would be a hike,<\/a> warning it would be “bad for everyone” if the bank did not “act decisively enough”.<\/p>\n