Westpac forecast an August Reserve Bank of Australia (RBA) rate hike despite warning that second‑round CPI effects from the Middle East could hit Australian households.
On Tuesday, the bank’s chief economist noted that oil price spikes after the Israel‑Iran flare‑up have already added 0.3 percentage points to the latest consumer‑price index.
How the conflict is feeding inflation
Crude settled at US$92 a barrel on Wednesday, a record high for the year. That surge lifts transportation and food costs, two of the CPI’s biggest weightings.
Westpac’s model projects an extra 0.2 percent rise in headline inflation for the June‑July quarter, pushing the annual figure toward 4.1 percent.
Why does this matter?
Households feel the pinch directly: a family of four will see its weekly grocery bill climb by roughly $15, while fuel‑pump prices could add $0.12 per litre.
For savers, the RBA’s likely 25‑basis‑point hike in August means higher mortgage rates and tighter credit conditions.
Westpac’s stance on monetary policy
Even with the added inflation pressure, Westpac still sees the RBA on track for a single 0.25 percentage‑point increase in August, followed by a pause.
The bank argues that the “second‑round” effects are likely to be transitory once global oil supplies stabilise.
That view contrasts with some analysts who predict a second hike if oil stays above US$95 a barrel.
What happens next?
Investors will watch the Australian Bureau of Statistics release on 4 July for the latest CPI figures. If those numbers confirm Westpac’s scenario, the RBA may indeed hold steady after August.
Otherwise, a surprise second hike could trigger a sell‑off in the Australian dollar and pressure on equity markets.
For a deeper dive into how geopolitical shocks ripple through economy and markets, stay tuned.
Meta: Westpac warns Middle East conflict could add 0.2% to Australian inflation while still forecasting an August RBA rate hike.