Sarah Hunter, Assistant Governor (Economic) Bloomberg 19 May 2026

Why It Matters

Higher fuel‑related costs could push Australian inflation above target, prompting tighter monetary policy and affecting corporate pricing, investment decisions, and consumer spending.

Key Takeaways

• RBA targets 2‑3% CPI average, not individual price spikes.
• Domestic capacity constraints and import costs drive inflation pressures.
• Middle‑East conflict raises fuel prices, adding 0.4‑point inflation.
• Faster cost pass‑through could lift underlying inflation this year.
• Inflation expectations must stay anchored to avoid prolonged price hikes.

Summary

Sarah Hunter, the RBA’s Assistant Governor for Economic, used the Bloomberg forum to outline the central bank’s inflation framework and to assess how the ongoing Iran‑related conflict could reshape Australia’s price outlook. She reiterated the RBA’s 2‑3% CPI target, emphasizing that the goal is an average across the basket rather than a reaction to isolated price spikes, and explained that inflation is driven primarily by domestic capacity pressures and external supply shocks such as oil price volatility.

Hunter detailed the two‑bucket model the RBA employs: domestic cost pressures measured by spare‑capacity indicators like the labor under‑utilisation rate, and import‑price shocks that feed through the economy. She highlighted that the Phillips‑curve relationship still holds, with tighter labour markets pushing inflation higher, and cited recent research showing that the 2022‑23 inflation surge was partly due to rapid pass‑through of oil‑related costs, accounting for up to 1.25 percentage points.

Specific examples underscored the analysis: Australian petrol prices surged 36% at their peak, diesel remains elevated, and fuel now represents roughly 2‑2.5% of production costs across many sectors. The RBA’s latest modelling adds a 0.4‑point boost to underlying inflation for the March‑2027 quarter, assuming relatively swift cost pass‑through. Hunter warned that if firms accelerate price adjustments or if the conflict persists, inflation expectations could become unanchored, complicating monetary policy.

The implications are clear: near‑term headline inflation may peak near 4.8%‑8% before easing as oil prices recede, but the RBA will need to balance rate hikes against household spending power and the risk of entrenched expectations. Uncertainty remains high, with scenarios ranging from prolonged supply disruptions to stronger consumer cut‑backs, making the central bank’s communication and policy stance critical for businesses and investors alike.

Original Description

In this speech to the Bloomberg Forum for Investment Managers, the RBA’s Assistant Governor (Economic) Sarah Hunter outlines how the RBA has used our frameworks to think about inflation in the context of the current Iran conflict.