RBA concerned rising oil prices could fuel inflation surge

Her comments come with annual headline inflation at 3.5 per cent, well above the central bank’s 2–3 per cent target range, and oil prices climbing to around US$102 a barrel.

Hunter said the consequences of higher oil prices extended from household petrol bills to operating costs across the economy.

“Clearly, prices have tracked up just recently. That is flowing into the local economy,” she said.

“It’s certainly concerning in the context of what it costs, therefore your energy costs if you’re running a business, what it means for households in terms of the cost of petrol you’re putting in your car and therefore what it ultimately means for inflation which is what we’re tracking and targeting, so it’s pretty challenging.”

Conflict risk in focus

Oil prices on Tuesday reached four-month highs after drones were launched over the weekend from Iraq on Saudi Arabia’s East-West pipeline by a militia group believed to have links to Iran, sharpening concerns about disruptions to global energy supply routes.

Hunter said the conflict had become a central upside risk in the RBA’s inflation assessment, alongside broader global price pressures and questions over the economy’s productive capacity.

“We do think that risks to inflation right now are skewed to the upside. One of those is the Middle East conflict,” she said.

“The conflict hasn’t reached a sustainable resolution. We are definitely concerned therefore about what that means for fuel prices and the flow of crude oil and refined products through the global economy.”

The RBA Monetary Policy Board next meets on 28–29 September, with its decision due one day before the Australian Bureau of Statistics (ABS) releases monthly August CPI data.

Markets have been pricing a strong chance of a further 25-basis-point increase, which would lift the cash rate to 4.60 per cent, a 15-year high.

Following a flurry of rate forecast revisions, the National Australia Bank (NAB) and Macquarie Bank are now predicting a September rate hike, while the Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group (ANZ), and Westpac are forecasting a 0.25 per cent November increase.

CBA lifts neutral-rate view

The oil shock has emerged as major bank economists reassess how restrictive current monetary policy really is.

CBA senior economist Trent Saunders said the bank had raised its estimate of the nominal neutral rate, the theoretical setting at which policy neither supports nor suppresses economic activity, to 3.85 per cent.

“Over the past year, inflation pressures have been stronger than expected while activity has remained resilient. Taken together, this suggests monetary policy has been less restrictive than previously thought, implying a higher neutral rate,” Saunders said.

CBA’s 3.85 per cent estimate is 15 bps higher than its July view and 65 bps above its October 2025 estimate.

The bank’s estimated range is 3.2–4.3 per cent, leaving the current cash rate only just above the upper bound.

“On these updated estimates, monetary policy remains restrictive, but by less than previously thought,” Saunders said.

“There is also uncertainty around how restrictive monetary policy is. Our estimates range from 3.2 to 4.3 per cent, with the current cash rate of 4.35 per cent sitting just above the top end of this range.”

[Related: NAB predicts September hike in major forecast overhaul]