Chalmers Warns Iran War Could Push Inflation to 5% or Beyond
Inflation in Australia showed a slight easing in February, but Treasurer Jim Chalmers says this calm is likely only temporary, as the war in Iran threatens to send prices surging. February’s Consumer Price Index rose 3.7 percent year-on-year, a modest dip from the previous month, with housing, food and non-alcoholic beverages driving the increases. Underlying inflation, which strips out volatile items, held steady at 3.3 percent—still above the Reserve Bank’s target range.
Chalmers stressed that these figures came before the outbreak of hostilities between the US, Israel and Iran at the end of February. He warned that the conflict is expected to significantly impact energy costs and that the full effect won’t be visible until the next round of CPI data is released. According to Treasury modelling, if oil prices stay above $120 a barrel and decline only gradually, inflation could reach 5 percent, with Chalmers suggesting these estimates now look conservative. He is calling for modelling under “more challenging circumstances” to plan for the potential economic fallout.
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The war has already pushed oil prices near $119 per barrel, intensifying concerns about higher costs for fuel, goods and overall living expenses. Energy Minister Chris Bowen defended the government’s response, noting that supply disruptions are being addressed with alternative fuel shipments, while accusing the opposition of using public fuel data for political messaging. Meanwhile, opposition leaders argue that the government is unprepared to handle the unfolding crisis and have intensified scrutiny over fuel shortages across the country.
Chalmers highlighted two critical variables in the economic outlook: the timing of the end of the conflict and how quickly global markets recover after the most intense phase of hostilities. He compared potential consequences to past shocks like the global financial crisis and the COVID-19 pandemic, underscoring the risk of prolonged economic strain. Higher energy prices are expected to affect households, businesses and supply chains and could embed longer-term inflation expectations if not carefully managed.
For Australians already feeling the pressure of rising living costs, this warning from the Treasurer signals that tighter budgets may persist. The Reserve Bank has raised interest rates twice this year to address inflationary pressures, but international events beyond its control could counteract these efforts. How quickly stability returns depends heavily on developments in the Middle East and the global energy market.
Stay with us as we continue tracking these developments, providing updates on inflation, energy prices and government responses, keeping you informed of the impact on the Australian economy and daily life.
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