Central bank warns Israel-Hamas conflict could affect inflation.
Conflict in the Middle East Could Impact Inflation, Warns Australia’s Central Bank Head
In her first public appearance in Sydney, Reserve Bank of Australia governor Michele Bullock has highlighted the potential impact of the conflict in the Middle East on inflation. She emphasized that oil prices rose significantly following the “shock” of the Israel and Hamas conflict.
The crude oil price has surged by over 6 percent since the war began, according to trading economics data.
Higher oil prices can lead to increased petrol prices, which in turn impact inflation. The price of oil has risen from US$82.790 per barrel to US$88.0214 since the market close on Oct. 6.
“Following the shock, we observed a rise in oil prices. Even before that, the price of petrol had been steadily increasing. This uncertainty surrounding oil supply is likely to keep oil prices elevated,” Ms. Bullock explained.
“Additionally, there is concern that defense and war issues may hinder growth in regions like Europe.
“This presents a challenge because a slowdown in the global economy does not bode well. So, it’s a delicate balancing act considering the potential implications.”
Inflation Impact
Since the start of the conflict on Oct. 7, more than 1,400 Israelis, including infants, have lost their lives, and at least 155 people have been kidnapped by Hamas terrorists.
Speaking at the AFSA Annual Summit Panel in Sydney, Ms. Bullock emphasized the potential inflationary impact of the war.
“Currently, we are more concerned about the inflation implications. Typically, when we encounter supply shocks that drive up prices, we assume it will eventually stabilize,” she stated.
“However, the problem lies in the continuous succession of shocks. The longer inflation remains elevated, even due to supply shocks, the more people adjust their expectations. This entrenches inflation further, posing a challenge.”
Ms. Bullock also noted that inflation expectations in Australia are currently high.
“If inflation expectations remain persistently high without a decline, it will become increasingly difficult to bring it down in the future,” she added.
Hospital Blast Update
Meanwhile, on Tuesday, the Australian Government urged its citizens stuck in the Middle East to leave as soon as possible.
“The situation in the Middle East is rapidly deteriorating… If you are currently in Israel and wish to depart, do so immediately,” warned Home Affairs Minister Clare O’Neil.
On Wednesday, a hospital in Gaza City was struck, resulting in the deaths of at least 500 people. Despite numerous media outlets reporting Israeli involvement, Israel denied any responsibility for the attack.
“Media outlets worldwide were quick to publish Hamas’ headlines without fact-checking. We now know that an Islamic Jihad rocket, aimed at Israel, misfired and hit the hospital in Gaza,” stated the Israel Defense Forces on Oct. 18.
At the same time the hospital was hit in Gaza, the Israeli side reported that a rocket aimed at Israel “misfired and exploded” at 18:59.
U.S. officials have concurred with this analysis, with President Joe Biden suggesting that “the other team” was responsible for the blast.
How does the uncertainty surrounding oil supply impact oil prices and inflation?
Ually dissipate as the market adjusts. However, in the case of this conflict, the uncertainty surrounding oil supply is likely to keep oil prices elevated,” she said.
Ms. Bullock highlighted that higher oil prices can lead to increased petrol prices, which can have a direct impact on inflation. As the price of petrol has already been steadily increasing, the conflict in the Middle East may further exacerbate inflationary pressures.
In addition to the impact on oil prices, Ms. Bullock also mentioned the potential negative effects of the conflict on global economic growth. She expressed concerns that defense and war issues in regions such as Europe could hinder economic growth, which in turn could have broader implications for inflation.
“A slowdown in the global economy does not bode well for inflation. It presents a challenge for central banks in terms of managing inflationary pressures while also supporting economic growth,” Ms. Bullock explained.
Furthermore, Ms. Bullock acknowledged the human cost of the conflict, emphasizing the tragic loss of lives and the suffering experienced by innocent civilians. While her primary focus was on the economic implications, she expressed empathy and concern for the humanitarian crisis caused by the war.
Overall, Ms. Bullock’s remarks underscore the potential impact of the conflict in the Middle East on inflation and the global economy. The rise in oil prices and the uncertainties surrounding oil supply pose challenges for central banks in managing inflationary pressures. The ongoing war and its broader economic effects highlight the delicate balancing
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