Australia’s inflation outlook amid Middle East conflict and RBA rate decisions
Consensus Summary
Australia’s inflation outlook is dominated by the February 28 US/Israel-Iran conflict, which threatens to reverse recent cooling in consumer prices. February’s CPI rose 3.7%, down slightly from January, but underlying inflation remained stubbornly at 3.3%, well above the RBA’s 2–3% target. Energy price spikes from the conflict—already pushing Brent crude to $103/barrel and Australian petrol above $2.40/litre—are expected to surge March’s CPI, with economists warning inflation could hit 5% or higher. The RBA raised rates in March, citing tight labour markets, but markets now anticipate further hikes, with some pricing in rates exceeding 4.6% by year-end. While housing and food drove February’s inflation, the Guardian highlights profit margins—not wages—as the primary driver, contradicting RBA claims of wage-driven pressures. Treasurer Jim Chalmers has repeatedly warned the conflict will worsen inflation, though he avoided commenting on whether fuel price rises should influence RBA decisions. The next CPI release on April 24 will be critical, as it will reflect the full impact of the conflict, with analysts divided on whether the RBA will prioritize fighting inflation or mitigating economic strain from higher costs.
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Key details reported by multiple sources:
- February CPI rose 3.7% year-on-year, down 0.1% from January’s 3.8%, with housing and food/non-alcoholic beverages as top contributors (ABC, NEWSCOMAU).
- Underlying inflation (trimmed mean) remained steady at 3.3% in February (ABC, NEWSCOMAU).
- The US/Israel-Iran conflict began on February 28, with energy price spikes not yet reflected in February CPI data (ABC, NEWSCOMAU, GUARDIAN).
- Brent crude oil prices reached $103/barrel ($148 AUD) in March, pushing Australian petrol prices above $2.40/litre (NEWSCOMAU).
- The Reserve Bank of Australia (RBA) raised interest rates for the second time in 2025 on March 5, citing tight labour markets and capacity pressures (ABC, NEWSCOMAU).
- Treasurer Jim Chalmers warned the Middle East war could push inflation above 5% and worsen economic growth (ABC, NEWSCOMAU).
- March CPI data (releasing April 24) will include the full impact of the Iran conflict on energy prices (ABC, NEWSCOMAU).
- The RBA’s target inflation band is 2–3%, with both headline and trimmed mean rates exceeding this range (ABC, NEWSCOMAU).
- Unleaded petrol prices in Sydney averaged 166.0c/litre in February but spiked to 248.7c/litre by mid-March (GUARDIAN).
- The RBA’s Statement on Monetary Policy forecast June 2025 inflation at 4.2%, but market expectations now exceed 4.6% by year-end (GUARDIAN)
Points of Difference
Details reported by only one source:
- Westpac chief economist Luci Ellis stated headline inflation could rise to around 5% due to energy price shocks, citing increased inflation expectations from fuel price spikes (ABC).
- Dr Ellis noted the RBA would be cautious about embedded inflation expectations from the conflict (ABC).
- Treasurer Chalmers explicitly stated the war would ‘make Australia’s inflation challenge worse’ (ABC).
- The RBA warned the Middle East conflict could push inflation higher but its immediate impact would only be known in next month’s figures (ABC).
- MCL senior economist Bob Cunneen predicted Australia could hit 5% annual inflation over coming months due to oil prices at $103/barrel and petrol above $2.40/litre (NEWSCOMAU).
- Global X’s Marc Jocum described February’s inflation data as ‘the calm before the storm,’ warning of supply chain risks from the Strait of Hormuz (NEWSCOMAU).
- Consumer inflation expectations surged to a record 6.9%, up 1.7% in four weeks (NEWSCOMAU).
- BDO chief economist Anders Magnusson stated the RBA’s March rate hike was justified by ‘persistently high underlying inflation and new upside risks’ from the conflict (NEWSCOMAU).
- Chalmers refused to comment on whether fuel price rises should influence RBA rate decisions, calling the RBA independent (NEWSCOMAU).
- The Guardian reported petrol prices in Sydney rose from 166.0c/litre in February to 223.7c/litre by mid-March, with a 29% jump since the bombing began (GUARDIAN).
- The Antipoverty Centre and Greens called for suspension of mutual obligations for jobseekers due to fuel cost hikes (GUARDIAN).
- The Guardian highlighted that profit margins—not wages—were the primary driver of inflation in late 2025, citing GDP data (GUARDIAN).
- December quarter enterprise bargaining agreements averaged 3.7% wage rises, the lowest since mid-2023, contradicting RBA claims of wage-driven inflation (GUARDIAN).
- Markets initially priced in a 4.1% cash rate before the conflict but later adjusted to expect rates reaching 4.6% or higher by year-end (GUARDIAN).
- The Guardian noted the RBA’s June 2025 inflation forecast of 4.2% was already considered optimistic given the conflict’s impact (GUARDIAN).
Contradictions
Conflicting information between sources:
- ABC and NEWSCOMAU report February petrol prices were above $2.40/litre, while the Guardian states Sydney’s average was 166.0c/litre (≈$1.66) in February—no source confirms the $2.40 figure as a national average.
- The Guardian claims December quarter wage rises averaged 3.7%, lower than RBA’s implied wage-driven inflation narrative, which ABC and NEWSCOMAU do not address.
- NEWSCOMAU states consumer inflation expectations hit 6.9%, but ABC and the Guardian do not provide this specific figure or context for expectations.
- ABC and NEWSCOMAU both cite Chalmers warning inflation could exceed 5%, but the Guardian does not quote Chalmers on this exact phrasing—only ABC does.
- The Guardian reports markets briefly priced in a 4.85% cash rate, while ABC and NEWSCOMAU focus on 4.6% as the upper bound—no source confirms 4.85% as a consensus.
Source Articles
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