Reserve Bank of Australia governor Philip Lowe says Russia’s illegal invasion of Ukraine is muddying the global economic outlook with spiking energy prices set to drive headline inflation higher.
“The global economy is continuing to recover from the pandemic,” Dr Lowe said in a statement after the bank’s March board meeting on Tuesday. “However, the war in Ukraine is a major new source of uncertainty.”
In particular, the RBA governor said it was unclear how persistent the recent pick-up in inflation would be, given the connection between the conflict and spikes in energy prices, including record high petrol costs.
The RBA kept the current record low 0.1 per cent cash rate on hold for another month.
Dr Lowe said the bank would be “patient” and ensure inflation was sustainably within its 2 per cent to 3 per cent target band before beginning to normalise emergency level monetary policy settings.
Headline inflation lifted to 3.5 per cent in the December quarter, while underlying inflation, the RBA’s preferred measure, lifted to 2.6 per cent.
“The CPI inflation rate will spike higher than this due to the higher petrol prices resulting from global developments,” Dr Lowe said.
“How long it takes to resolve the disruptions to supply chains is an important source of uncertainty regarding the inflation outlook, as are developments in global energy markets.”
Global oil prices rose sharply in the days following Russian troops crossing into Ukraine. Brent Crude was trading at just over $US100 ($137) a barrel on Tuesday, while West Texas Intermediate was priced at $US96.
The lift in international fuel costs is a big contributor to rising Aussie petrol pump prices. The national average weekly retail unleaded petrol price rose by 1.5 cents a litre to a fresh record high of 180.6 cents last week.
“Filling up the car with petrol is one of the single biggest weekly purchases for consumers,” said CommSec senior economist Ryan Felsman.
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