NAB warns inflation could hit 5 per cent as Australian drivers panic buy petrol amid Middle East turmoil

One of Australia’s biggest banks, NAB, is now forecasting inflation hitting five per cent for the first time in three years as the war in the Middle East sparks panic buying of petrol.

Sydney’s average of $2.15 a litre for basic 91-octane unleaded petrol is now only a shade below the $2.20 price Australian motorists were paying in March 2022, after Russia’s Ukraine invasion led to sanctions.

More crude oil price rises would see the average cost of petrol hit new all-time highs within days.

The conflict is already stopping the supply of crude oil through the Strait of Hormuz, which is leading to fuel rationing to distributors by United Petroleum, Australia’s largest independent retailer.

The immediate retail price increases for petrol and diesel, without the usual seven to 10-day lag, has led to long queues at service stations with some customers stockpiling fuel in jerrycans, NRMA spokesman Peter Khoury said on Monday.

“We now have reports of service stations running low or running out and that is a domestic problem that we have created for ourselves,” he said.

“Please stop panic buying fuel. This is not COVID and we’re not selling toilet paper.

“Australians are buying fuel at a far greater rate than they normally would and we are also hearing troubling reports of people trying to stockpile fuel at home which apart from not making any economic sense is also extremely dangerous.”

By the end of June this year, NAB chief economist Sally Auld is expecting headline inflation to hit five per cent.

This would be the highest level since the September quarter of 2023, when the Reserve Bank of Australia was still in the process of raising interest rates 13 times over 18 months.

“The peak in inflation remains highly sensitive to energy price movements,” Ms Auld said.

“The situation in the Middle East is fluid and market moves are large and have been rapid. Against this backdrop, it is difficult to make forecasts with much confidence at present.”

AMP chief economist Shane Oliver calculated a 40-cent-a-litre increase would add 0.8 per cent to an already high inflation rate of 3.8 per cent, which is well above the Reserve Bank’s 2-3 per cent target.

This would see the consumer price index soar to 4.6 per cent.

“It’s certainly a risk. The RBA is worried about the flow-through of higher fuel prices to inflation and inflation expectations,” he told The Nightly.

“People demand higher wages growth which adds to costs for companies. Companies will find it easier to put price rises through and you get this inflation mentality.”

The futures market now sees two more rate rises this year, which would take the RBA cash rate back to 4.35 per cent.

When added to February’s increase, this would undo the effects of rate cuts in February, May and August of last year.

In the five days after US air strikes killed Iran’s former Supreme Leader Ayatollah Ali Khamenei, the national wholesale petrol price climbed by 8 per cent to $1.69 a litre, as of Friday, which included the GST and excise.

The terminal gate price of diesel in Sydney reached $1.94 a litre over the weekend.

Sydney, Melbourne and Brisbane were already at the top of the weekly price cycle.

The blocking of the Strait of Hormuz also means higher prices for liquefied natural gas, as this disruption also hampers the global supply of a key Australian export.

This leads to higher LNG prices which in turn boosts company tax revenue, Dr Oliver said.

“It’s not so much crude oil per se, it’s just the supply disruption. Just as 20 per cent of global oil supply is coming through the Strait of Hormuz, has been blocked, we’re seeing similarly 20 per cent of global gas supplies being blocked,” he said.

“It’s a lack of supply. Higher LNG prices will lead to higher revenues by oil producers or energy producers like Woodside and Santos which then flows through to the Budget.”

But the effects of more expensive petrol are bad for the economy and would weaken other commodity prices, including iron ore used to make steel.

This would effectively mean no real revenue benefit to Treasurer Jim Chalmers, as reduced revenue from a weaker iron ore market cancelled out the benefits of higher LNG prices.

“You might benefit one way but you might suffer the other way,” Dr Oliver said.