RBA Warns Rising Oil Prices May Fuel Inflation Surge

The Reserve Bank of Australia (RBA) is concerned that rising oil prices may fuel inflation pressures, adding to expectations of another interest rate hike. According to RBA assistant governor Sarah Hunter, escalating oil prices driven by the Middle East conflict could intensify domestic inflation pressures.

Annual headline inflation in Australia is currently at 3.5%, well above the central bank's 2-3% target range. Oil prices have climbed to around US$102 a barrel, and Hunter warned that these costs are already affecting households and businesses across the economy.

The conflict risk has become a central upside risk in the RBA's inflation assessment, alongside broader global price pressures and questions over the economy's productive capacity. The RBA's Monetary Policy Board meets on 28-29 September, with markets pricing a strong chance of a further 25-basis-point increase to lift the cash rate to 4.60%, a 15-year high.