Impact on inflation from fuel price hike to be revealed
The first impact of the Iran war on the Australian economy will become apparent when key inflation data is released.
The first inflation figures since US and Israeli attacks on Iran led to the closure of the Strait of Hormuz will be released on Wednesday.
Economists expect a large increase in inflation in March due to the sharp increases in gasoline and diesel prices, which are reflected in other sectors of the economy.
Commonwealth Bank economists have predicted inflation will rise almost a full point this month, from 3.7 per cent to 4.6 per cent.
They estimate that the trimmed average inflation, which strips out more volatile price increases such as oil costs, will rise from 3.3 percent to 3.5 percent.
The Federal Reserve prefers the trimmed average as a true measure of inflation; the figures are already well above the bank’s target range of two percent to three percent.
The release of fresh inflation figures will come less than a week before the central bank’s board of directors meets in May, where a third consecutive rate hike is expected.
Even before the war against Iran began, RBA governor Michele Bullock had expressed concerns about high inflation levels.
The Commonwealth Bank said it was more likely that the RBA would not raise interest rates following the upcoming inflation data.
“Given that the RBA will announce its decision on interest rates on May 5 and money markets suggest a 72 percent chance of a 25 basis point interest rate increase, the data will be watched carefully,” the bank said in a statement.
While other economic data has been published since the beginning of the conflict in the Middle East, inflation figures will provide some of the first indications of the wider economic impact of the war.
NAB’s Australian economics officer, Gareth Spence, said inflation is expected to increase further in the months following March’s figures.
“We expect inflation to peak in the second quarter with a truncated average of 3.9 percent on an annualized basis and a headline of 4.9 percent,” he said in a research note.
“We expect reduced average inflation to be 0.5 points higher cumulatively through 2026 due to the cost shock from the Middle East.”
Wall Street investors, meanwhile, appear optimistic about possible negotiations between the United States and Iran to end the war, or at least a ceasefire between the two countries, with both the S&P 500 and Nasdaq closing at record highs.
The former was up 56.68 points, or 0.80 percent, to end Friday at 7,165.08, and the latter was up 398.09 points, or 1.63 percent, to 24,836.60.
The rise in Intel shares extended the rise in semiconductor stocks.
The Dow Jones Industrial Average fell 79.61 points, or 0.16 percent, to 49,230.71 points.
Australian share futures fell three points, or 0.03 percent, to 16,666.
The S&P/ASX200 fell 6.9 points on Friday, falling 0.08 percent to 8,786.5 points, while the All Ordinaries index lost 17.8 points, or 0.08 percent, to 9,006.4 points.
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