Australia’s inflation remains elevated, with excess demand still evident, according to the Reserve Bank’s March meeting minutes. Rising oil prices, driven by tensions in the Middle East, were highlighted as a key near-term driver of inflation, pushing up short-term inflation expectations, although longer-term expectations remain well anchored.
Higher energy costs are expected to weigh on economic growth both in Australia and globally, though the magnitude of the impact is uncertain. Policymakers observed that financial conditions have tightened slightly, but there was some uncertainty over how restrictive current policy settings actually are.
Most members judged that further interest rate increases are likely to be required to return inflation to target, with risks increasingly skewed to the upside. They noted that supply constraints could intensify amid ongoing geopolitical developments, adding further price pressures.
At the same time, the outlook for demand is less clear, given Australia’s position as a major energy exporter and the ongoing resilience of household balance sheets. Members estimated that if oil prices remain near USD 100 per barrel, headline CPI could rise to around 5% in the June quarter.
