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Australians should brace for at least six months of inflationary pressures linked to fuel costs, according to a leading economist.
Diana Mousina, the deputy chief economist at AMP, has forecast a minimum of six months of rising prices for Australians, with the potential for this period to lengthen significantly.
“If oil supply does not resume, we can expect oil prices to climb even higher, which would severely impact demand,” Mousina explained.
She also cautioned that the likelihood of a further 5 to 10 percent decrease in market values remains “very high.”
“However, our current expectation is that negotiations between the US and Iran will be successful in the coming weeks,” Mousina added.
“But our base case for now is that US and Iranian negotiations are successful over coming weeks,” she said.
“However, it may take a while for oil prices to normalise again. So higher inflation is likely for (up to six) months.”
Mousian estimated a household using 35L of petrol a week for driving would have been spending about $60 a week before March, rising to $88 a week in March, and would likely decline to $78 a week in April if there were no further oil price rises.
The lengthy oil shock is likely to have further knock-on effects, including slower consumer spending and lower GDP growth.
Mousina also predicted the Reserve Bank of Australia would raise interest rates – a reflex learned from the COVID-19 pandemic.
“While usually central banks look through supply shocks as one-off increases to prices, the problem is higher inflation expectations which can increase wage demands and higher prices seeping into other parts of the supply chain, much as it did through COVID-19,” she wrote.
“The ‘PTSD’ shock of COVID-19 will make central banks nervous to see the current supply shock as a ‘transitory’ factor and will keep central banks hawkish.”
Mousina predicted another increase to interest rates in May, and the “chance” of another in later 2026.
“But this means that there is a high chance of rate cuts in 2027 as GDP growth slows,” she said.
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