The Reserve Bank of Australia is bracing for an inflationary surge, with internal projections now suggesting the consumer price index will hit 5% by June.
Minutes from the RBA's March meeting reveal a board deeply unsettled by the dual threats of a US$100-per-barrel oil price floor and escalating geopolitical instability.
The forecasted peak would represent the highest inflationary reading in nearly three years, effectively erasing the stability achieved since the aggressive tightening cycle of late 2023.
The central bank’s revised outlook sits 0.75 percentage points above February’s estimates, a shift triggered by recent military strikes in the Middle East and the subsequent blockade of the Strait of Hormuz.
Policymakers warned that sustained energy costs are no longer a contained risk; instead, they are beginning to bleed into broader input costs for firms.
"Sustained higher oil prices would boost inflation more broadly over time as some of this effect is passed onto consumers," the minutes noted, highlighting a shift in short-term inflation expectations.
The hawkish turn culminated in a 25-basis-point hike to 4.1% on March 17, though the decision exposed a fragile consensus.
The board was split, with a narrow five-to-four vote in favour of the increase.
While Treasury modelling suggests a more gradual ascent toward the 5% threshold in the coming financial year, the RBA's immediate concerns regarding supply-chain shocks and energy-led price hikes suggest a more volatile economic path ahead for Australian households.