In a speech to the Committee for Economic Development of Australia, Reserve Bank of Australia Monetary Policy Board member Ian Harper, speaking in his official capacity but not on behalf of the board, said inflation in Australia had already started to rise again before the Middle East conflict and that the resulting fuel price shock supported the Bank's May decision to raise the cash rate to 4.35 per cent. He said monetary policy cannot prevent the initial increase in fuel prices, but it can limit the risk that the shock becomes embedded in broader inflation, with the Bank's published forecasts showing underlying inflation remaining above the 2 to 3 per cent target band until 2027 and not returning to the 2.5 per cent midpoint until 2028 under current settings. Harper said trimmed mean inflation peaked in the December quarter of 2022, eased toward target, then turned higher again around mid-2025 as stronger than expected demand and renewed domestic capacity constraints reopened inflationary pressure, prompting a February rate increase before the conflict began. The conflict then pushed petrol and diesel prices higher, partly offset by a temporary suspension of fuel excise that the government plans to reinstate on 1 July, and he said fuel's 3.5 per cent weight in the CPI basket means a direct lift to headline inflation as well as spillovers into travel, groceries, fruit and vegetables and new dwellings. On activity, he described the impact as less certain because higher fuel costs squeeze household real incomes and can discourage investment, but Australia also benefits from higher export earnings as a net energy exporter and households may smooth consumption from savings. He pointed to the Bank's forecasts for GDP growth to slow to around 1.3 per cent in the middle of the year, labour market conditions to soften and market based long term inflation expectations to move higher.
Reserve Bank of Australia2026-06-02
Reserve Bank of Australia Monetary Policy Board member says inflation had already reaccelerated before Middle East conflict and cash rate returned to 4.35 per cent
Reserve Bank of Australia Monetary Policy Board member Ian Harper said the recent fuel price shock from the Middle East conflict reinforced the Bank’s May decision to raise the cash rate to 4.35 per cent, noting inflation had already begun rising before the conflict. He said monetary policy cannot prevent the initial fuel price increase but aims to stop the shock embedding in broader inflation, with forecasts showing underlying inflation above the 2 to 3 per cent target band until 2027 and GDP growth slowing to around 1.3 per cent as labour market conditions soften.