Highlights

  • RBA Assistant Governor Sarah Hunter identified the international oil shock as an additional challenge for Australia's inflation outlook.
  • Higher petrol and diesel prices are beginning to affect other costs, including construction materials and household renovation expenses.
  • The RBA remains concerned that externally driven price increases could become more persistent throughout the domestic economy.
  • Monetary policymakers are balancing the need to reduce inflation against the effects of higher borrowing costs on households and businesses.

Australia's inflation outlook faces additional uncertainty as rising international oil prices increase fuel and production costs across the economy, complicating the Reserve Bank of Australia's (RBA) efforts to restore price stability.

In an interview published on 25 October 2026, RBA Assistant Governor (Economic) Sarah Hunter discussed how the international oil shock is affecting Australian households and businesses. She explained that higher energy prices are beginning to influence costs beyond petrol stations, adding to existing domestic inflation pressures.

The interview highlighted the RBA's challenge of managing inflation driven by both international supply disruptions and domestic demand conditions.

How Higher Oil Prices Affect Everyday Expenses

Oil prices influence economic activity through transportation, freight, manufacturing and the production of petroleum-based materials.

When fuel costs increase, businesses operating across these sectors may face higher expenses. Depending on market conditions, some of these costs can eventually be reflected in consumer prices.

Hunter identified petrol and diesel as the most visible consequences of the latest international oil shock.

She also pointed to construction and renovation expenses as examples of higher input costs beginning to affect other parts of the economy.

The transmission of energy costs through supply chains can take time, meaning that initial increases in fuel prices may be followed by subsequent adjustments elsewhere.

Why the RBA Is Concerned About Persistent Inflation

A central consideration for monetary policy is whether temporary price shocks create longer-lasting inflation pressures.

An increase in international oil prices can initially raise the cost of particular goods and services. However, the broader inflation outlook also depends on how businesses, households and other participants respond to these increases.

Hunter emphasised that the RBA must prevent external inflation pressures from becoming embedded in the Australian economy.

The Assistant Governor stated, "We don't want to live with high inflation for a long time."

This concern explains why the RBA is examining the interaction between imported cost pressures and domestic economic demand.

While Australia cannot directly control international oil prices, domestic monetary policy can influence spending conditions and broader inflation dynamics.

Domestic Demand Remains an Additional Challenge

Higher energy prices are not the only factor influencing Australia's inflation environment.

Hunter explained that demand in the domestic economy remains above the level that can be sustainably supplied while maintaining low and stable inflation.

The combination of strong demand and increasing input costs presents a more complicated environment for monetary policymakers.

The RBA has implemented four interest rate increases during 2026, according to Hunter's remarks, as part of its effort to moderate demand and address inflation.

However, changes in borrowing costs affect the economy gradually. Household spending, business investment and financing decisions may respond over different periods.

Consequently, monetary policy must account for both existing inflation pressures and the delayed economic effects of previous interest rate adjustments.

Could Rising Oil Prices Affect Australian Businesses?

Higher fuel and transportation expenses can influence operating costs across several industries.

Transport and logistics businesses have direct exposure to fuel prices, while construction companies may experience higher material and delivery expenses.

Retailers and manufacturers can also face indirect effects when suppliers adjust charges to reflect increased production and freight costs.

The ultimate impact on profitability and consumer prices depends on individual businesses' cost structures, contractual arrangements and ability to absorb or pass through higher expenses.

Hunter's comments suggest that the RBA is particularly attentive to evidence that these effects are spreading through domestic supply chains.

The interview did not provide a numerical estimate of the oil shock's contribution to Australian inflation.

Interest Rates and the Risk of an Economic Slowdown

The RBA's response to inflation must also account for the financial pressures that higher interest rates create.

Households with mortgages may experience increased repayments, while companies can face higher borrowing expenses when financing investment.

Hunter acknowledged these effects but indicated that the RBA was not seeking to push the economy into recession.

She explained that available economic indicators and information collected through the RBA's business liaison program had not identified recessionary conditions.

Nevertheless, the central bank continues to monitor consumption, business activity, employment and financial stress as higher rates flow through the economy.

Key Insights

Australia's inflation outlook is being shaped by two interconnected pressures: higher international energy costs and an ongoing imbalance between domestic demand and supply.

The latest oil shock is already affecting fuel prices, with additional costs emerging in construction and other supply chains.

Hunter indicated that the full transmission of these pressures could require more time, while declining to provide a definite timetable for inflation relief.

Future developments in international oil markets, domestic spending, business costs and inflation indicators will therefore remain relevant to the RBA's assessment of monetary policy conditions.

Q1. Why are rising oil prices important for Australian inflation?

Higher oil prices increase fuel and transportation costs and can contribute to broader price pressures as businesses adjust their expenses.

Q2. What did the RBA say about the latest oil shock?

Assistant Governor Sarah Hunter said the shock was already affecting fuel prices and beginning to influence costs in other sectors, including construction.

Q3. Can higher interest rates directly reduce international oil prices?

No. Australian interest rates do not directly control global oil prices, but they can influence domestic demand and help contain broader inflation pressures.

Q4. Has the RBA increased interest rates during 2026?

Yes. Hunter stated that the RBA had implemented four interest rate increases during 2026 to address inflation pressures.

Q5. When does the RBA expect inflation pressures to ease?

Hunter did not provide a definite timetable, explaining that the outlook depends partly on international oil price developments and domestic economic conditions.