In sobering comments, Reserve Bank of Australia (RBA) Governor Michele Bullock has declared that Australians are poorer due to the global fuel shock triggered by the US-Israel war on Iran. Speaking after the central bank announced a third consecutive rate hike, Bullock offered a stark assessment of the economic outlook.
Australians Feeling the Pinch
'Australians are poorer because of this shock to oil prices and energy prices and all the other commodity prices that are being impacted,' Bullock told journalists. 'So yes, we are all feeling poorer. That's what this has done, this war on the other side of the world.'
The RBA's latest forecasts confirm this grim reality: higher prices, lower growth, and wages that fail to keep pace with inflation. The economy is expected to grow at an 'anaemic' rate of 1.3% in 2026, half the pace of the previous year.
Not a Recession, but an Economic Malaise
Bullock emphasized that Australia is not heading for a recession, even under the worst of two pessimistic scenarios considered by the central bank. However, she described the current situation as an economic malaise that Australians had hoped to avoid just six months ago.
On a positive note, unemployment is expected to remain reasonably steady, in the low fours, through to the end of the year. 'In other words, you will be poorer but you should keep your job,' Bullock said, acknowledging that this silver lining lacks shine.
Interest Rate Outlook
Bullock defended the decision to raise rates, stating that her focus extends beyond the next six months. 'The fuel shock is here and will work its way through the economy,' she explained. The rate hike gives the RBA's rate-setting board 'space to see how the conflict plays out,' suggesting that another rate increase is not guaranteed.
However, analysts at NAB interpreted the RBA's stance as more concerned about inflation than expected, predicting another hike when the board meets in June. The outcome will largely depend on developments in Iran.
Government Response Under Scrutiny
Bullock also weighed in on the upcoming federal budget, warning against excessive government spending to shield households from the economic pain. 'The extent to which government make up the shortfalls for households by giving them more money makes it harder to dampen demand,' she said. In other words, splashing taxpayer money around could force the RBA to raise rates further.
Treasurer Jim Chalmers responded by stating the government intends to 'play a helpful role, not a harmful role, in the fight against inflation.'
As the conflict in the Middle East continues to unfold, Australians face a period of economic uncertainty, with higher prices and slower growth expected to persist.
