(Bloomberg) — Australian gasoline prices jumped last week by the most since the height of the US-Iran war following the collapse of a ceasefire between Washington and Tehran, suggesting persistent inflationary pressures ahead.
Drivers shelled out an average of A$1.82 ($1.27) per liter of petrol in the seven days to July 26, with the weekly increase the biggest since the seven days to March 29, according to data Monday from the Australian Institute of Petroleum. Meantime, the price of diesel jumped to almost A$2.20 a liter.
Australia’s center-left government has sought to shield motorists, farmers and miners from the impact of the Middle East energy shock by temporarily slashing fuel taxes. Following an interim agreement for peace talks between Iran and the US, and the resumption of oil shipments through the Strait of Hormuz, the government began winding back the tax break.
However, with the resumption of fighting in Iran and ships traversing Hormuz declining to a trickle, prices are picking up again. One-fifth of the world’s oil and liquefied natural gas supplies flowed through the waterway prior to the conflict.
The Reserve Bank of Australia, in its latest quarterly update of economic forecasts released in May, highlighted the risks from increasing fuel costs.
“Higher fuel prices, along with the resulting increase in inflation, can influence short-term inflation expectations,” it said in its Statement on Monetary Policy. “Research in Australia and elsewhere finds that changes in fuel prices can affect households’ inflation expectations by more than might be expected given its share in overall consumption.”
It added that “this is likely to be because fuel is frequently purchased, and its price is highly visible and widely covered in the press.”
The RBA next meets in about two weeks and will release updated forecasts together with its policy decision on Aug. 11.
In the meantime, the Labor government has been encouraging fuel companies to boost stockpiles during the energy crisis. The amount of fuel in storage through mid-July is well above levels at the beginning of the war, which started with US and Israeli strikes on Iran at the end of February.
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