Middle East Conflict Drives Up Inflation Risks for Australians

The ongoing conflict in the Middle East has had far-reaching consequences for Australians, making them poorer and driving up inflation risks, according to Reserve Bank of Australia (RBA) Governor Michele Bullock.

In a recent parliamentary hearing, Bullock stated that upside risks to inflation are materializing due to the spike in oil prices caused by the conflict. This has worsened the trade-off between inflation and employment, making it more challenging for the RBA to balance these competing priorities.

'I think we have to acknowledge that the trade-off has got worse,' Bullock said. 'This particular Middle East shock has made us poorer, and we can't respond to that by letting inflation get out of control.'

The RBA's Monetary Policy Board will meet at the end of September to consider interest rates, with a focus on whether the current rate is sufficient to bring inflation back within the 2-3 percent target band. The most recent data showed annual inflation fell from 3.8 percent in June to 3.5 percent in July, the lowest figure since November 2025.

The RBA increased the cash rate target by 0.25 percentage points three times in the first six months of 2026 but kept the key interest rate on hold at 4.35 percent in recent meetings. With inflation risks on the rise, Bullock emphasized that it is essential to bring inflation back within the target band.