Key facts
- Australian households may face an interest rate hike and petrol prices above $2 a litre.
- Global crude oil prices have risen above $100 a barrel due to the Middle East crisis.
- The RBA is considering a fourth cash rate increase at its next meeting on August 11.
- Petrol prices are expected to exceed $2 a litre following the end of fuel excise discounts.
- Higher fuel costs could impact inflation expectations and strain household budgets.
Australian households are facing a dual threat of rising interest rates and soaring petrol prices, according to economists. Global crude oil prices have surged above $100 a barrel due to escalating tensions in the Middle East, particularly the US-Iran conflict and disruptions to supply routes. This surge, combined with the phasing out of government fuel tax relief, is expected to push petrol prices above $2 a litre in the coming weeks.
Financial markets are pricing in a 50% chance that the Reserve Bank of Australia (RBA) will implement a fourth interest rate hike at its upcoming meeting on August 11. Warwick McKibbin, director of the ANU’s Centre for Applied Macroeconomic Analysis, warned that elevated oil prices could persist for at least a year, citing depleted global reserves and supply pressures from the Red Sea blockade and Ukrainian attacks on Russian energy infrastructure.
Johnathan McMenamin, a senior economist at Barrenjoey, noted that the combination of higher international prices and the reduction of the fuel excise discount after August 2 will likely drive unleaded petrol prices above $2 a litre. Diesel prices have already climbed significantly in July. These rising fuel costs pose a challenge to the RBA's efforts to curb inflation and could reignite inflation expectations among consumers and businesses.
However, not all economists agree on the necessity of another rate hike. Sally Auld, NAB's chief economist, suggested that while inflation remains high, it is tracking slightly below the RBA's forecasts, and unemployment is running a bit higher. She believes this scenario warrants the RBA holding rates steady to allow the slowing economy to ease price pressures. Auld also expressed concern that a combination of increased cost-of-living pressures and another rate hike could create significant challenges for a segment of Australian households, potentially leading to a less benign economic adjustment.