Perth’s inflation woes to worsen as Treasurer warns Middle East war will push prices up higher for longer

Perth is enduring the nation’s worst inflation as Treasurer Jim Chalmers warned prices across the economy would stay higher for longer thanks to the war in Iran. The latest figures — which do not include any of the disruption since the war began earlier this month — come as some businesses across the State say the conflict’s impact is “probably the final nail in the coffin”. With average petrol prices closing in on 260¢/litre in Perth on Thursday and average diesel prices nearing 310¢/litre, further cost increases for shoppers are inevitable, businesses say. One of the world’s most influential chief executives also warned a further oil price surge to $US150 a barrel would trigger a global recession. Larry Fink, whose BlackRock manages $20 trillion in assets said a prolonged period of elevated crude oil prices could result in “a probably stark and steep recession”. “If Iran remains a threat and oil prices stay high, it will have profound implications for the world economy,” he said. Inflation in Perth in February was flat at 4.9 per cent — thanks in large part to elevated housing costs and higher electricity prices than February last year because State Government subsidies are wearing off — well above second-ranked Hobart at 4 per cent. Nationally inflation was slightly down compared to January, but Dr Chalmers conceded it will accelerate despite that slight dip. Economists are divided on whether it will trigger yet another interest rate rise in May. A Chamber of Commerce and Industry WA survey to be released on Thursday showed 82 per cent of WA businesses have started to feel higher supplier costs since the outbreak of war, while one in three say it has had a severe or significant effect on business. Just over half plan to absorb the rising costs, but the rest say they will have no choice but to pass additional expenses on to customers. Meanwhile, WA’s oldest dairy, Brownes, is reviewing the sustainability of its deliveries, saying the scale of rising costs was unprecedented. Before the worst energy crisis in modern history the consumer price index eased to 3.7 per cent from an annual pace of 3.8 per cent in February, according Bureau of Statistics data on Wednesday. As economists at big four bank Westpac predicted inflation would hit 5.5 per cent by the middle of the year, Dr Chalmers said inflation was “still too high and the war will make it worse”. “The inflationary pressures from the war in the Middle East are very substantial and we expect to see the consequences of that war push up inflation higher for longer in our economy,” he told reporters in Canberra. “What we’re seeing with petrol prices, particularly for those Australians who can’t substitute out of petrol or diesel, obviously that has a dampening effect on the economy as well.” Economists are worried expectations that prices will continue to rise for the foreseeable future will become entrenched in the economy, prompting the Reserve Bank of Australia to increase interest rates so high it triggers a recession. Oil prices fell and shares rose on Wednesday after President Donald Trump said “the war is won” and sent a 15-point peace proposal to Iran, which ridiculed the approach and attacked Saudi Arabia and Kuwait with missiles. An inflation surge above 5 per cent would be the most dramatic since early 2022, when Russia’s Ukraine invasion sparked crude oil sanctions and was followed by aggressive rate hikes into late 2023. Even before the war, Australian inflation had risen to levels last seen three years ago when the Reserve Bank was last aggressively hiking rates. With inflation above the Reserve Bank of Australia’s 2-3 per cent target, a May interest rate hike is still considered likely, even though high petrol prices have sent consumer confidence to the lowest level on record. The annual underlying measure of inflation with volatile price items, known as the trimmed mean, was still elevated at 3.3 per cent in February, with Westpac expecting a modest lift in this measure to 3.5 per cent by mid-year. The data covered the February 28 air strikes on Iran but not the spike in crude oil prices above $US100 a barrel for the first time in four years and an increase to more than $2.50 for unleaded petrol in cities. Housing expenses rose 7.3 per cent. Education prices rose 4.8 per cent. Volatile domestic holiday travel and accommodation cost rose 8.8 per cent. Overall services inflation was at 3.9 per cent and goods inflation was 3.5 per cent. Shoe prices rose 5.5 per cent. The futures market and most economists expect a May 5 rate hike, following the publication of March inflation data. “Another hike is possible if there is a larger pass-through of higher oil prices into other parts of spending and if inflation expectations remain elevated,” AMP deputy chief economist Diana Mousina said. Some economists argue rates should be cut because high energy prices, which effect the price of almost all goods, make people poorer and spend less on other things, including holidays, furniture and computers. With economic growth already weak and expected to slow even more, Deloitte Access Economics chief Pradeep Philip said a May rate rise during an oil crisis risked making a bad situation worse. “Time will tell whether last week’s rate hike was a prudent safeguard against domestic pressures and external shocks, or a premature move that risks weakening an already fragile economy being rocked by forces beyond its control,” he said.