CANBERRA, AAP – Even the Reserve Bank of Australia is unsure about how persistent the pick-up in inflation will be as a result of Russia’s invasion of Ukraine war.
This comes of little help to households who are already fretting over cost of living pressures as rising petrol prices alone eat into their budgets.
The Australian Institute of Petroleum said in its weekly report released on Tuesday that the national average petrol price soared 13.7 cents to a record 197.6 cents a litre.
Prices ranged from 184.9 cents to 211.1 cents during the course of the week ending March 13.
The weekly ANZ-Roy Morgan consumer survey found inflation expectations rising by 0.4 percentage points to 5.6 per cent, its highest level since November 2012.
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Inflation expectations can in themselves create price pressures as workers chase higher wages as compensation.
The impact on household budgets from record petrol prices has also seen consumer confidence tumble 4.3 per cent in the past week to 95.8, its lowest level since October 2020.
“Households are certainly noticing the effect of higher prices on their finances,” ANZ head of Australian economics David Plank said.
The recent spike in global crude oil prices to around $US130 per barrel as a result of Russia’s invasion of Ukraine could see further rises in petrol prices in the short term.
However, oil prices were heading back down towards $US100 a barrel on Monday.
“If the recent fall in oil prices is sustained, we would expect inflation expectations to ease,” Mr Plank said.
In the minutes of its March 1 board meeting, the RBA said underlying inflation was expected to increase further over coming quarters before moderating as supply chain problems are resolved.
“However, the war in Ukraine and the associated increase in energy prices had created additional uncertainty about the inflation outlook,” the minutes released on Tuesday said.
The board stuck to the script of being patient before lifting the cash rate as it monitors how the various factors affecting inflation in Australia evolve.
Still, RBA governor Philip Lowe has previously warned the annual rate of inflation could reach at least four per cent and a rate rise this year was plausible.
Some economists expect annual inflation could reach as high as five per cent compared with 3.5 per cent now.
The RBA’s business liaison program found firms were increasingly prepared to pass higher costs onto their customers, particularly in the construction, manufacturing and retail industries, where upstream cost pressures had been most acute.
The latest Australian Chamber of Commerce and Industry-Westpac survey of industrial trends survey found that while conditions in manufacturing improved moderately in the early stages of 2022, the sector is still suffering labour and material shortages.
Its composite index rose into expansionary territory to 56.7 points in the March quarter after the flat 50.8 result in the December quarter.
ACCI chief executive Andrew McKellar said while manufacturing remained resilient in spite of the Omicron surge, expectations have been dampened by the continued volatility in the global economy.
“International supply chain bottlenecks are producing material constraints on a scale not seen in almost 50 years,” Mr McKellar said.
“With the costs of inputs increasing at a much faster rate than prices, the Russian invasion of Ukraine and soaring commodity prices will undoubtedly lead to further pressure on manufacturers who are already being squeezed.”