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Following this month’s interest rate hike from the Reserve Bank of Australia (RBA), Governor Michele Bullock warned that the Middle East war is already creating second-round inflation effects in Australia — where higher oil prices spill over into broader price and wage-setting — and that these effects risk making inflation more persistent and harder to bring down.
“Many firms that are facing cost pressures are looking to increase prices… If left unchecked, higher costs get embedded into price and wage setting decisions”, she said.
Bullock emphasised that if these behaviours become entrenched, more monetary tightening would be required from the RBA:
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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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