RBA warns Middle East conflict could spike inflation and disrupt trade

RBA Assistant Governor Christopher Kent says the Middle East conflict raises severe inflation and economic risks for Australia. The RBA warns that Middle East conflict-related shocks may push energy prices higher, disrupt shipping routes, and alter global trade patterns. Kent highlights key inflation transmission channels. Higher oil and gas costs can quickly feed into transport and production expenses. Supply-chain disruptions can raise goods prices and spill over into services inflation. He also flags risks to inflation expectations. RBA monitoring focuses on indicators tied to energy market volatility, logistics disruptions, consumer confidence, and business investment delays. The central bank notes Australia’s specific exposure: refined petroleum imports, electricity generation linked to gas prices, and agriculture inputs such as fertilizer. Scenario planning is underway given geopolitical escalation risk. Policy considerations: Kent notes the RBA may need to balance inflation control against support for activity, using tools such as interest-rate adjustments, forward guidance, liquidity operations, and communications to anchor expectations. Overall, the message is that the RBA’s inflation path could be materially affected by international developments outside domestic control. The RBA is therefore preparing contingencies for multiple escalation scenarios.