IMF scenario could push Australian petrol up 30 cents a litre

RBA may have to weigh more rate hikes if oil hits US$130

The International Monetary Fund’s latest World Economic Outlook sets out a scenario in which global oil prices reach US$130 a barrel from the fourth quarter of 2026 through the first quarter of 2027 — a path economists said could push Australian unleaded petrol up another 30 cents a litre and pile pressure on the Reserve Bank of Australia to lift interest rates further.

The IMF scenario assumes a Middle East conflict that “persists through the end of June 2027, keeping the straits of Hormuz and Bab el-Mandeb largely closed to commercial shipping, extending damages to oil infrastructures in the region, and delaying the recovery in oil supply to the end of 2027.” With limited scope for further inventory drawdown, the IMF said, “oil prices reach $US130 from the fourth quarter of 2026 to the first quarter of 2027” — up from over US$106 a barrel now.

In the same report, the IMF modelled the impact on global growth and inflation from a worsening Middle East crisis that extended into next year, highlighting what the Washington-based institution described as the “clear and present danger” to a resilient global economy from turmoil in commodity and bond markets.

Using a rule of thumb that every US$10 rise in global oil prices translates to a 10 cent rise at the bowser, a US$30 jump in crude could drive unleaded petrol towards $2.70 a litre — the highest since the start of the war more than seven months ago. Unleaded petrol in Australia’s major east coast cities has already pushed above $2.40 a litre in recent days and toward six-month highs, while diesel has eased but remains high at about $2.80 a litre.

Economists told Guardian Australia that such a move could leave inflation more than 1 percentage point higher than expected by the end of the year, adding to households’ cost of living woes and dragging on growth.

Jonathan Kearns, the chief economist at Challenger, said “the reality” was that the Reserve Bank — alongside other central banks — would have to respond to higher fuel costs with higher interest rates. “The question is how much higher,” Kearns said.

Johnathan McMenamin, head of economic forecasts at Barrenjoey, said he expected inflation to lift to 4.2% in the year to September, up from 4% in August. McMenamin said every 10% rise in fuel prices directly added 0.33 percentage points to headline inflation.

The Reserve Bank’s prediction of a fall in headline inflation to 3.6% by the end of the year is based on the Brent crude price falling to US$81 a barrel. Under the IMF scenario, McMenamin said inflation could instead still be as high as 4.5% in late 2026.

McMenamin was less convinced the Reserve Bank would respond with higher interest rates, saying the central bank has been mostly responding to underlying price pressures related to domestic capacity constraints rather than overseas factors.

The Reserve Bank delivered a fourth interest rate hike last month. Minutes from that meeting, released on Tuesday, showed board members discussed how “the Middle East conflict had escalated and oil prices were substantially above the level assumed in the August forecasts.” Members also noted that “global cost pressures appeared to be building. Some of this came from the indirect effects of higher oil prices,” the minutes said.

The IMF did not publish an Australia-specific impact estimate from a hypothetical US$30 jump in crude prices, leaving the 30 cent Australian figure to be derived from the standard bowser rule of thumb rather than direct country-level modelling.