An expected 7 percent increase in fuel prices in the September quarter will add around a quarter of a percent to inflation. The rise in fuel prices is a result of conflicts in the Middle East and Ukraine, as well as oil production cuts. Australian fuel prices already saw a 9.1 percent increase in August, with unleaded petrol rising by an average of 17 cents per litre. Treasurer Jim Chalmers expressed concerns about the impact of these rising prices on Australian consumers.
According to Treasury estimates, fuel prices are expected to increase by 7 percent in the September quarter, which will contribute to inflation. In August, inflation was recorded at 5.2 percent, down from a peak of 7.8 percent in the previous quarter. Deloitte Access Economics released a report stating that Australia is currently in a retail recession and per capita income recession, but may avoid a technical recession. Retail growth has been low, indicating reduced consumer spending, and consumer confidence remains fragile. The Reserve Bank of Australia (RBA) has not ruled out a potential interest rate hike to control inflation.
The rise in retail petrol prices is expected to have long-term effects on inflation and households’ inflation expectations, according to the RBA. Deloitte’s forecasts for 2023-24 predict a decline in gross domestic product, with factors such as decreased dwelling investment and household consumption contributing to lower economic growth. A recent survey on the cost of living revealed that eight out of ten Australians have experienced increased expenses in various categories.
Despite the short-term challenges, there is optimism about the longer-term outlook of the economy. Real wages are expected to rise in late 2023, and strong population growth provides support. However, Standard & Poor’s issued a warning about the conflict between Israel and Hamas, stating that it could contribute to inflation and hinder economic activity. The conflict has already led to a surge in oil prices, and there are concerns about the impact on global inflation as central banks continue to address the effects of the COVID-19 pandemic and the conflict in Ukraine.