RBA inflation vow as petrol shoots up

Philip Lowe has pledged to ‘do what is necessary’ to keep inflation from getting out of control.

Philip Lowe climbing fuel costs could lead to inflationary pressures being ‘more persistent and broad-based’. Picture: Getty Images

Reserve Bank governor Philip Lowe has pledged to “do what is necessary” to keep inflation from getting out of control, with oil and gas executives saying Australians could be stuck with very high ­prices “for some time” as Western nations continued to turn the screw on Russian oil ­exports.

While Dr Lowe touted the central bank’s inflation-fighting credentials, motorists across Sydney, Perth, Adelaide and in parts of Brisbane faced unleaded petrol prices as high as $2.21 a litre, ­according to the website ­MotorMouth. The record fuel costs came as international crude prices spiked higher after US President Joe Biden and British counterpart Boris Johnson said they would boycott Russian oil.

Mr Biden said the oil ban would constrict “the main artery of Russia’s economy”, which is ­already on the brink of collapse as a result of unprecedented international sanctions.

Britain said it would phase out Russian crude by the end of the year, while global oil giants BP and Shell announced they would immediately stop buying Russian oil and gas, and the EU planned to slash gas imports by two-thirds.

Energy traders were further unnerved by Russian President Vladimir Putin’s threat to choke off all energy supplies to Europe. The international Brent crude benchmark climbed to $US131 a barrel in late Asian trade, the highest level since 2008 and up nearly 40 per cent since Russia invaded Ukraine.

The sudden end to exports from Russia and – in the case of agricultural commodities – Ukraine has triggered unprecedented price gains outside the energy market.

Near-panic among futures traders over two London trading sessions this week triggered a more than tripling in the price of nickel, which peaked above $US100,000 a tonne before stockmarket operators suspended trading.

The International Monetary Fund has said rising wheat and corn prices are sending food costs soaring in poorer countries.

Australia’s top oil and gas ­executives on Wednesday said “off the charts” energy prices were set to remain, given the ­inability of producers to quickly bring on new production.

Santos chief executive Kevin Gallagher told a conference in Sydney “unless there’s another massive slowdown as a consequence of a massive recession or another pandemic, we could be stuck with very high prices – unhealthily high prices – for some time”. Big energy producers have been cautioning that a push by ­activists and some investors away from fossil fuels should not come at the expense of a staged ­national energy transition.

Woodside chief executive Meg O’Neill said the rollercoaster in raw material prices would force a re-evaluation of ­energy security.

“I think the one thing the crisis in Ukraine will ­really cause (is for) the world to think very soberly about is the importance of energy security,” she said. “When we talk to customers, they want affordable energy, they want lower carbon energy, but first and foremost they want reliable energy.”

With the rouble in free fall and reports of supermarket rationing, global ratings agency Fitch on Wednesday again downgraded Russia’s credit rating, warning a debt default was now “imminent”.

Dr Lowe said the RBA was prepared to remain patient and wait for transitory shocks to wash through, but climbing fuel costs could lead to inflationary pressures being “more persistent and broad-based”.

“The risks on inflation have certainly moved to the upside,” he said. Higher petrol prices at the bowser would “eat into household budgets, push up costs for many businesses and crimp spending in some areas”.

As Dr Lowe reiterated that it was “plausible that the cash rate will be increased later this year”, CBA head of Australian economics Gareth Aird said the RBA governor “sounded closer to raising interest rates than at any other time over the pandemic”.

Mr Aird said a politically explosive pre-election rate rise at the May board meeting was now a “live” possibility.

The governor’s speech to The Australian Financial Review business conference came as a new survey showed talk of floods, war, inflation and higher interest rates had spooked households.

Westpac’s latest consumer sentiment report showed confidence had turned negative for the first time since September 2020, with the bank’s gauge dropping from 101 points in February to 97 points in early March, with pessimists outnumbering optimists.

Westpac chief economist Bill Evans said awareness of issues around inflation had “exploded” to the highest level in 14 years.

A question on news recall in the survey showed accelerating consumer price growth was top of mind, with nearly 40 per cent of respondents recalling news on inflation, from under 10 per cent a year ago.

Energy Minister Angus Taylor said a boycott of Russian crude oil would have little effect on Australian fuel supply. “Practically speaking, only 1.5 per cent of the crude oil we purchase in Australia is coming from Russia, and both … (domestic) importers of that crude oil … said they’re not going to buy any more from Russia,” Mr Taylor told Sky News.

“So that effectively means we won’t be using it. We don’t need it. The crude oil we need comes offshore from 30 different countries. Russia is a tiny portion of it.”

Dr Lowe said the war in Ukraine was “first and foremost a catastrophic event in human terms, but it is also a new major risk to the global economy”.

“From both a humanitarian and economic perspective, there is a lot riding on how events develop,” he said.

“Australia is in a different position because we export many of the commodities whose prices are rising. This means that our terms of trade will rise over the months ahead, which will provide a boost to our national income.”

Dr Lowe continued to preach a patient approach to monetary policy normalisation, saying “there is also a risk of moving too early. Australia has the opportunity to secure a lower rate of unemployment than has been the case for some decades.

“Moving too early could put this at risk,” he said.

“The recent lift in inflation has brought us closer to the point where inflation is sustainably in the target range. So too have recent global developments. But we are not yet at that point.”

Additional Reporting: Max Maddison