Inflation’s Shifting Sands: From Steady February to Iran War Fallout
Economic data rarely remains relevant for long and February’s inflation figures are a prime example. Published on Wednesday, the numbers were quickly overshadowed by the escalating impact of the Iran war on global energy markets. Even as February showed a degree of stability, the situation has rapidly changed.
February’s Calm Before the Storm
In February, annual inflation stood at 2.4%, mirroring January’s rate and meeting economists’ expectations. Core inflation, excluding volatile food and energy prices, also aligned with forecasts at 2.5% year-over-year. Grocery prices saw a modest 0.4% increase from January, while dining out rose 0.3% over the same period. These figures, however, represent a snapshot before the significant disruptions caused by the conflict in Iran.
The Iran War’s Immediate Impact: A 50-Cent Shock at the Pump
The outbreak of hostilities in late February dramatically altered the landscape. The Strait of Hormuz, a critical waterway for global oil supply (handling over 20% of the world’s oil), has been effectively shut down. This has triggered a surge in oil prices, increasing by more than 20% since the initial strikes. Retail gas prices have soared by over 50 cents.
Rate Hike Anticipation: The RBA’s Dilemma
The Reserve Bank of Australia (RBA) is now facing increased pressure to raise interest rates. Before the conflict, markets anticipated a cash rate of 4.1%. Initial reactions to the bombing suggested the RBA might hold off, but statements from the governor and deputy governor signaled a willingness to raise rates, even at the risk of triggering a recession. By mid-March, the market was pricing in at least two rate rises this year, potentially pushing the cash rate to 4.6% by Christmas.
Petrol Prices: A Dramatic Spike
The impact on petrol prices has been particularly acute. In Sydney, unleaded petrol averaged 166.0c/litre in February, but by month’s conclude, it had jumped to 189.9c/litre. As of March, the average price in Sydney is 223.7c/litre, with prices reaching 248.7c/litre on Tuesday. Nationally, unleaded petrol has risen by more than 56 cents a litre – a 29% increase since the conflict began.
Beyond Energy: The Impact on Vulnerable Populations
The rising cost of fuel is disproportionately affecting low-income individuals. The Antipoverty Centre has highlighted that the increased cost of fulfilling mutual obligation requirements for jobseeker recipients has outstripped their ability to pay, prompting calls for a suspension of these activities.
The Shifting Drivers of Inflation: Profits vs. Wages
Recent GDP data reveals a shift in the drivers of inflation. While labour costs (wages and superannuation) had a decreasing impact on annual inflation in the latter half of 2025, the impact of profits rose. The majority of the inflation spike at the end of 2025 stemmed from increased profit margins. However, wage growth appears to be moderating, with average annual wage rises for enterprise agreements slowing down in the December quarter.
FAQ
Q: What caused the recent spike in inflation?
A: The primary driver is the disruption to global energy markets caused by the conflict in Iran, leading to higher oil and petrol prices.
Q: What is the RBA likely to do?
A: The RBA is likely to continue raising interest rates, even if it risks a recession, to combat inflation.
Q: How are rising petrol prices impacting vulnerable populations?
A: Individuals on low incomes are particularly affected, as the cost of fuel is increasing faster than their ability to pay.
Q: Is wage growth contributing to inflation?
A: While previously a concern, recent data suggests wage growth is slowing down, and profit margins are now a more significant driver of inflation.
Did you grasp? The Strait of Hormuz handles over 20% of the world’s oil supply, making it a critical chokepoint in the global energy market.
Pro Tip: Monitor fuel prices in your area using comparison websites and apps to find the cheapest options.
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