Rabobank’s Global Strategist Michael Every notes the Reserve Bank of Australia (RBA) minutes stress that it is not possible to predict the cash rate path with confidence given Middle East conflict uncertainty. The RBA estimates Oil at around $100 would lift headline CPI to about 5% in Q2, implying further tightening is likely, even as some policymakers already worry about stagflation risks.
RBA uncertainty and stagflation concerns
“Meanwhile, in Australia the RBA minutes’ key line was: “it was not possible to predict the future path for the cash rate target with any confidence, given the high degree of uncertainty around the breadth and duration of the current conflict in the Middle East.” It added that the direct effect of oil prices remaining around $100 would on its own lift headline CPI to around 5% in Q2, 0.75% higher than expected in February, and sustained higher oil prices would boost inflation more broadly over time. A majority agreed further tightening in policy would likely be required in the near term, but a minority was already worrying about the ‘stag’ part of stagflation.”
“The RBA is right about the Middle East – and let’s repeat that one then has to look at that complex region through a broad geopolitical lens, not a narrow “because markets/elections” one that said this war wasn’t going to happen. Oh – and that today saw half a million young Aussie workers get up to 42% pay increase due to changes to minimum wage rates.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/aud-rba-flags-oil-driven-inflation-risks-rabobank-202603310637
