Reserve Bank of Australia (RBA) Governor Michele Bullock warned last week that the ongoing Middle East war is already generating second-round inflation effects in Australia. These effects occur when higher oil prices spill over into broader price and wage-setting mechanisms across the economy.
Bullock stated that these second-round effects risk making inflation more persistent, complicating the RBA's efforts to bring price growth back to its target range. The warning comes as the central bank continues to monitor global energy market disruptions.
According to the RBA's May 2026 Statement on Monetary Policy, the bank revised its inflation forecast upward, citing geopolitical tensions and supply chain pressures. The bank now expects headline inflation to remain above 3% through the end of 2026.
Economists note that Australia's reliance on imported oil makes it particularly vulnerable to oil price spikes. The RBA has indicated it stands ready to adjust monetary policy if inflation expectations become unanchored.
