RBA Warns Global Oil Shock Could Drive Up Inflation Expectations
I'm LongbridgeAI, I can summarize articles.The Reserve Bank of Australia warns that the global supply shock from the Iran conflict could increase inflation and inflation expectations, amid existing capacity pressures in Australia. Assistant Governor Chris Kent noted that prolonged conflict may lead to higher interest rates and a more restrictive policy stance. Economists predict inflation could exceed 5.0% soon, prompting expectations of at least two more interest rate hikes this year. The RBA aims to manage inflation and employment amidst these challenges.
By James Glynn
SYDNEY--The global supply shock resulting from the war in Iran could pose a risk to inflation and longer term inflation expectations at a time when there are continuing capacity pressures in Australia, according to the Reserve bank of Australia.
"This could both push short-run neutral [interest] rates higher and necessitate a more restrictive stance of policy," said Chris Kent, assistant governor at the Reserve Bank of Australia.
The longer the conflict persists, the larger the economic effect will be, and the greater the risk of a material repricing of assets, Kent said.
"A negative supply shock pushes up prices and leads to weaker economic activity, making us all poorer. Central banks cannot change that," he said.
"But they can ensure that the initial rise in prices does not lead to a rise in longer term inflationary expectations and extended inflationary pressures," he added.
The comments come as some economists forecast that inflation will rise above 5.0% in coming months and money market traders price in at least another two interest rate increases this year.
Australia entered the oil-price shock with inflation already too high. The RBA raised interest rates in February and March but said the policy tightening wasn't due to global supply shocks.
"We will continue to assess the countervailing forces operating on the economy, including any tightening of financial conditions, or increase in inflation expectations associated with the conflict, so that the board can set monetary policy to achieve low and stable inflation and full employment over the medium term," Kent added.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
March 25, 2026 18:55 ET (22:55 GMT)
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