Finance Minister Jim Chalmers has pointed to soaring global oil prices as a principal factor behind the increased mortgage payments for Australian homeowners.
During an interview on ABC’s 7.30 program with host Sarah Ferguson, Chalmers explained that a mid-year hike in petrol costs contributed significantly to the inflationary pressures, prompting the Reserve Bank of Australia (RBA) to raise the cash rate once more this past Tuesday.
“During the three-month stretch of July through September, we observed extreme volatility in petrol prices at the pump. This was largely due to major oil-exporting nations across the globe deciding to reduce their output, which, in turn, drove prices upward,” Chalmers stated.
He highlighted that the predominant component in the most recent inflation figures was the sharp rise in petrol prices.
Currently, Brent crude oil, which serves as a global price indicator, is trading at around US$83. This price reflects a 13% climb from its June level, where it was roughly US$72.
An uptick in oil costs can exert inflationary pressures because energy use is widespread throughout all sectors of the economy.
Higher petrol prices mean that transportation firms incur increased costs to deliver goods, which often results in higher prices for consumer products.
In response to inflationary surges stemming from pandemic-related supply disruptions and the onset of the war in Ukraine, the RBA has taken decisive action.
Since April 2022, when the cash rate was a mere 0.1%, the RBA has escalated it to 4.1% by June 2023. On Tuesday, RBA Governor Michelle Bullock announced an additional increase of 25 basis points, bringing the rate to 4.35%.
The cash rate determined by the RBA acts as a guideline for interest rates within the economy, leading banks to typically raise mortgage rates accordingly.
Bullock, speaking on Tuesday, noted that although inflation in Australia has crested, it remains excessively high and more stubborn than previously anticipated.
“The most recent consumer price index (CPI) data reveals that, while the inflation of goods prices has decelerated, the cost of many services continues to climb significantly.”
The RBA is strategically working to bring inflation back to its desired range of 2-3%.
Bullock expressed concern over the detrimental effects of high inflation, including the devaluation of savings, strained household finances, difficulties for businesses in planning and investment, and exacerbated income disparities.
She warned that entrenched high inflation expectations could lead to more drastic measures in the future, including steeper interest rates and a significant increase in unemployment.
Chalmers also cautioned that escalated oil prices could cast a shadow over Australia’s economic forecast.
“As noted by Treasury officials in recent Senate estimates, high petrol costs can impact the economy similarly to high interest rates,” he remarked.
He further added that since most people have limited options to reduce their spending on fuel, elevated petrol prices, much like rising interest rates, can also decelerate Australia’s economic growth.