Australia is bracing for an economic hit as the OECD warns of soaring inflation and critical disruptions to fertiliser supplies stemming from escalating conflict in the Middle East.
Despite a projected 2.3% growth rate—among the best in advanced economies—the Paris-based think tank highlighted a "resurgence in inflation" that pre-dates the current crisis.
Headline inflation is now forecast to hit 4.1% in 2026, a sharp 1.4 percentage point increase from previous estimates, trailing only a handful of nations, including the US and Russia.
The disruption is particularly acute for the agricultural sector. Australia ranks third globally for its reliance on Middle Eastern fertilisers, with over 60% of its urea passing through the now-blocked Strait of Hormuz.
With urea prices jumping 40% since mid-February, industry leaders like GrainGrowers CEO Shona Gowel warn of a "deeply concerning" long-term outlook for crop yields and food prices.
Domestic supplies are estimated to last only six weeks, potentially forcing food costs higher just as Treasurer Jim Chalmers warns local inflation could peak at 5% if oil remains above US$100 a barrel.
In response, the Reserve Bank of Australia is under immense pressure. RBA Assistant Governor Chris Kent noted that negative supply shocks are making households "poorer" by driving prices up while weakening activity.
Although the RBA typically overlooks temporary shocks, the OECD suggests further interest rate hikes may be necessary before mid-year to anchor inflation expectations, with relief in the form of rate cuts not expected until 2027.