Reserve Bank of Australia deputy governor says Middle East oil shock is an upside inflation risk ahead of Board meeting

The Reserve Bank of Australia published a transcript of a podcast interview in which Deputy Governor Andrew Hauser said the recent oil price shock linked to the Middle East conflict is an upside risk to the Bank’s February inflation outlook and will be central to the Board’s next rate discussion. He said inflation would be higher than projected in February if the shock persists, but the policy decision remains finely balanced because the same shock could also weaken activity and tighten financial conditions. Formal updated forecasts will not be issued until May. Hauser said Brent crude moved from about USD70 per barrel before the late February attack to a peak of USD117 before easing back to about USD88 during the interview, leaving the Bank to work with scenarios rather than a single estimate. January headline inflation was 3.8 per cent and underlying inflation 3.4 per cent, while the February forecast had inflation returning to the 2 to 3 per cent target range by end 2026 or in 2027 and reaching the midpoint in 2028, based on a technical assumption that the cash rate would rise slightly further. He said higher oil prices would feed through to petrol prices, firms’ costs and inflation expectations, although weaker demand, Australia’s position as a net energy exporter and exchange rate effects could offset some of the activity impact. Addressing market commentary, Hauser said National Australia Bank’s 5 per cent inflation scenario for mid 2026 assumed oil prices closer to USD100 and looked somewhat pessimistic relative to prices seen during the interview. The Board will weigh that external shock alongside stronger domestic indicators such as lower than expected unemployment and 2.6 per cent annual GDP growth, against softer consumption and lower unit labour costs.