An International Monetary Fund scenario where global oil prices jump to US$۱۳۰ a barrel over coming months could push Australian petrol prices up by another ۳۰ cents per litre and pile pressure on the Reserve Bank to hike interest rates, economists say.
In its latest World Economic Outlook, the IMF modelled the impact on global growth and inflation from a worsening Middle East crisis that extended into next year, highlighting the “clear and present danger” to a resilient global economy from turmoil in commodity and bond markets.
The Washington-based institution did not publish the impact on Australia from a hypothetical US$۳۰ jump in the price of crude oil, from over US$۱۰۶ a barrel now.
The IMF described a scenario where “the conflict persists through the end of June ۲۰۲۷, keeping the straits of Hormuz and Bab el-Mandeb largely closed to commercial shipping, extending damages to oil infrastructures in the region, and delaying the recovery in oil supply to the end of ۲۰۲۷”.
“With limited scope for further inventory drawdown, oil prices reach $US۱۳۰ from the fourth quarter of ۲۰۲۶ to the first quarter of ۲۰۲۷.”
Unleaded petrol prices in the major east coast cities have pushed above $۲.۴۰ a litre in recent days and towards six-month highs, while diesel prices have eased but remain high at about $۲.۸۰ per litre.
Using a rule of thumb that every US$۱۰ rise in global oil prices leads to a ۱۰c price rise at the bowser, a US$۳۰ oil price increase could drive unleaded petrol towards $۲.۷۰ and the highest since the start of the war more than seven months ago.
Economists told Guardian Australia that such a move could leave inflation more than ۱ percentage point higher than expected by the end of the year, adding to households’ cost of living woes and dragging on growth.
Jonathan Kearns, the chief economist at Challenger, said “the reality” was that the RBA – alongside other central banks – would have to respond to higher fuel costs with higher interest rates.
“The question is how much higher,” Kearns said.
The RBA delivered a fourth interest rate hike last month. Minutes from that meeting released on Tuesday showed that board members discussed how “the Middle East conflict had escalated and oil prices were substantially above the level assumed in the August forecasts”.
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“More broadly, members noted that global cost pressures appeared to be building. Some of this came from the indirect effects of higher oil prices,” the minutes read.
Johnathan McMenamin, head of economic forecasts at Barrenjoey, said he expected inflation to lift to ۴.۲% in the year to September, against ۴% in August.
McMenamin said that every ۱۰% rise in fuel prices directly added ۰.۳۳ percentage points to headline inflation.
The RBA’s prediction of a fall in headline inflation to ۳.۶% by the end of the year is based on the Brent crude price falling to US$۸۱ per barrel.
Should global oil prices instead push towards US$۱۳۰ per barrel, as per the IMF scenario (and assuming each US$۱۰ oil price increase leads to a ۱۰c rise in fuel prices), inflation could instead still be as high as ۴.۵% in late ۲۰۲۶.
But McMenamin was less convinced the RBA would have to respond with higher interest rates, saying the central bank has been mostly responding to underlying price pressures related to domestic capacity constraints, rather than overseas factors.
