Oil Shock Squeezes Households as RBA Weighs Rate Rise

Oil closed last week at US$106 a barrel, and senior Reserve Bank of Australia sources say it isn’t coming down. That’s a problem for the bank, and a bigger one for households already stretched thin. The RBA’s forecasts, due for an update next month, assumed oil would be as much as US$20 a barrel cheaper.

The war against Iran has widened to Saudi Arabia and the Gulf of Aden. Diesel has climbed back to around its level at the start of the Russia-Ukraine war, feeding into transport, manufacturing and food production alike. Inflation rose 0.4 per cent in August. It would have fallen that month but for higher petrol prices.

Who Bears the Cost

The bank’s official rate sits at 4.6 per cent, a 15-year high. Inflation has run above the 2-3 per cent target for three of the past four years. Unemployment hit a five-year high of 4.7 per cent in September. Weaker jobs figures cut the market’s perceived odds of a rise to 4.85 per cent in November from one in three to about one in five.

Governor Michele Bullock and senior researcher Anthony Brassil laid out the bind plainly. “If prices are rising faster than nominal incomes, households experience a direct loss of purchasing power. At the same time, weaker activity may mean that unemployment and underemployment are already increasing,” they said. Monetary policy, they added, “cannot eliminate the real economic loss caused by the shock. It can only influence how that loss is distributed over time.”

They also warned that “high inflation also tends to impose the most significant burdens on households with limited financial buffers.” Low-income people without mortgages have faced higher rents over the past three years and are among those hit hardest.

Food isn’t spared. Wheat is up 37 per cent this year, soybeans 24 per cent, sugar 42 per cent, and cocoa beans have more than doubled. LNG is about US$28 per unit, more than double its pre-war level. The International Energy Agency says global diesel prices, though down from September’s record of US$200 a barrel, remain almost double pre-war levels and are starting to affect “real incomes, economic activity and inflation.”

Home borrowers paid a record A$21 billion in interest in the three months to June. Mortgage payments as a share of disposable income were still lower than in 2024, when the cash rate peaked at 4.35 per cent, and many borrowers hold large offset balances. IMF chief economist Silvana Tenreyro said the global economy would have been weaker and inflation higher without oil-supply rerouting, improved energy efficiency and some countries’ shift to renewables. Analysts expect global supplies to remain squeezed through 2027.

The Budget Bill Comes Due

An ABC analysis by business editor Michael Janda argues Australia and other Western countries have put off economic reform. The Grattan Institute’s report, “Budget reboot: How to fund Australia’s future,” found state government debts have more than doubled since 2019. “Outside of the COVID pandemic, the last time Australian governments owed this much, the country was still paying off debt from a world war,” it said. Interest on state debt has doubled to 0.6 per cent of economic output and is likely to double again.

AMP’s survey found more than half of adults under 30 have changed their plans about having children because of living costs, and close to half have reconsidered having children altogether. Nearly two-thirds feel they need to own property first, yet saving a 20 per cent deposit takes most people more than a decade.

Grattan calls Australia a “relatively low-taxing country,” with tax at 29.4 per cent of GDP against an OECD average of about 34 per cent. It proposes lifting the GST from 10 to 15 per cent, taxing fresh food and considering removal of health and education exemptions. That would raise A$76 billion a year: about A$33 billion for income-tax cuts for low- and middle-income earners, A$25 billion for welfare and rent assistance to reduce poverty, and A$18 billion for states facing rising health costs. It also urges ending the 2018 GST deal with Western Australia, freeing A$6 billion.

Political support is shaky. Prime Minister Anthony Albanese has rejected abandoning Western Australia’s GST arrangement, set by Scott Morrison. Treasurer Jim Chalmers said: “Power is much more effective right now in the distorting and blocking than the building or reforming.” Former treasurer Joe Hockey was blunter: “There’s going to have to be a crisis now.”

Workers Want Corporate Climate Accountability

A Curtin Centre for Applied Ethics survey of 2,048 working Australians found 97 per cent believe large companies carry at least some responsibility to act on climate change. More than half said their employer had made a public commitment. Only one in seven thought it was making good progress. Almost four in five thought greenwashing was at least somewhat common.

Sixty per cent favour a gradual move away from mining and fossil fuels, with strong support for affected workers and communities. Eighty-five per cent would trust climate claims if disclosure were legally required and misleading claims penalised. Only about 44 per cent trust companies that report on themselves.

Why This Matters:

The numbers point in one direction: ordinary households absorb shocks they didn’t cause. Rising fuel and food costs, a 15-year-high rate, and rising unemployment land hardest on people with the thinnest buffers, exactly as Bullock and Brassil said. Meanwhile, Grattan’s work suggests deferred budget repair will eventually be paid by tomorrow’s Australians through higher taxes or worse public services. The same report ties revenue reform to income-tax cuts and poverty reduction, a reminder that how governments raise money is as much an equity question as a fiscal one. Workers’ appetite for legally enforced, independently audited climate disclosure also shows public expectations of accountability are running ahead of corporate practice, with COP31 negotiations due next month.