A senior Reserve Bank official says soaring fuel prices from the Iran war is \u201cmaking us all poorer\u201d, but signalled the central bank may need to hike interest rates again to prevent inflation getting out of hand.<\/p>\n
Chris Kent, an assistant governor at the RBA, said that a hit to financial markets from a global energy shock would normally argue against further rate rises.<\/p>\n
\u201cA negative supply shock pushes up prices and leads to weaker economic activity, making us all poorer<\/a>. Central banks cannot change that,\u201d Kent said.<\/p>\n \u201cBut they can ensure that the initial rise in prices does not lead to a rise in longer term inflationary expectations and extended inflationary pressures.\u201d<\/p>\n Consumer price growth was 3.7% in the year to February, already far above the RBA\u2019s target of 2.5%, after an unexpected jump in price pressures over the back half of last year.<\/p>\n This month\u2019s surge in petrol prices has led economists to warn inflation could reach 5% by the middle of this year, and the RBA has become increasingly concerned that rapid price rises will embed a high inflation mindset among Australians that will be hard to shake.<\/p>\n Sign up for the Breaking News Australia email<\/a><\/p>\n The assistant governor\u2019s comments came as the government said it would back an \u201ceconomically sustainable\u201d above-inflation wage rise for 2.7 million workers as part of this year\u2019s minimum wage decision.<\/p>\n The ACTU this week argued for a 5% increase, while employer groups have warned an increase of more than 3.5-4% would heap more pressure on businesses struggling with high operating costs and add to economy-wide inflationary pressures.<\/p>\n Amanda Rishworth, the employment minister, on Thursday hit back against claims that the government\u2019s recommendation to the Fair Work Commission would make it harder to bring inflation back under control.<\/p>\n \u201cWages are not a key driver of the recent pressures that we\u2019ve seen when it comes to inflation,\u201d she said.<\/p>\n Kent in his speech said the fuel-linked inflationary spike could \u201cnecessitate a more restrictive stance of policy\u201d, or higher interest rates.<\/p>\n \u201cThe supply shock also poses a risk to inflation and longer term inflation expectations at a time when there are ongoing capacity pressures in Australia and several other advanced economies,\u201d he said.<\/p>\n Many analysts expect the RBA\u2019s monetary policy board will hike its cash rate<\/a> for the third straight meeting in early May, despite an almost split decision earlier this month.<\/p>\n Financial markets see a roughly 65% chance of a hike in May, and fully anticipate another move higher by June, as well as a further hike by September.<\/p>\n