IMF scenario: fuel prices in Australia could rise another 30 cents a litre
An International Monetary Fund scenario in which oil reaches US$130 a barrel could add about 30 cents per litre to Australian petrol prices, economists say. That would increase pressure on the Reserve Bank of Australia to raise interest rates.
An International Monetary Fund (IMF) scenario in which global oil prices climb to US$130 a barrel in the coming months could push Australian petrol prices up by about another 30 cents per litre, economists told Guardian Australia. Such a rise would add pressure on the Reserve Bank of Australia (RBA), the country's central bank, to raise interest rates.
What the IMF modelled
In its latest World Economic Outlook, the Washington-based IMF modelled a worsening Middle East crisis that runs into next year. It warned of a "clear and present danger" to a resilient global economy from turmoil in commodity and bond markets.
In the scenario, the conflict lasts until the end of June 2027, the Strait of Hormuz and the Bab el-Mandeb strait remain largely closed to commercial shipping, oil infrastructure in the region suffers further damage, and the recovery in oil supply is delayed until the end of 2027. Oil then reaches US$130 from the fourth quarter of 2026 to the first quarter of 2027. It currently stands above US$106 a barrel. The IMF did not publish the impact on Australia.
Effect on prices and inflation
Unleaded petrol in major east coast cities has recently risen above $2.40 a litre, nearing six-month highs. Diesel has eased but remains high at about $2.80 per litre.
Using a rule of thumb that each US$10 rise in oil adds 10 cents at the pump, a US$30 increase could lift unleaded towards $2.70, the highest since the war began more than seven months ago. Economists estimate inflation could end the year more than 1 percentage point above expectations.
The RBA raised rates for the fourth time last month. Minutes released on Tuesday showed board members discussed how the Middle East conflict had escalated and how global cost pressures appeared to be building.
Johnathan McMenamin of Barrenjoey, an investment bank, expects inflation of 4.2% in the year to September, up from 4% in August. The RBA's forecast of 3.6% by year-end assumes Brent crude at US$81 a barrel. At US$130, inflation could reach 4.5% in late 2026. Jonathan Kearns, chief economist at Challenger, said the RBA would have to respond with higher rates, though McMenamin was less convinced, saying the bank mainly reacts to domestic price pressures.
