What are the Reserve Bank of Australia's updated inflation and growth forecasts, and how do they reflect the impact of the Gulf energy shock?

The Reserve Bank of Australia (RBA) has sharply raised its inflation forecasts, now expecting headline inflation to peak near 5%—with a projection of 4.8% in the June quarter—well above its 2%–3% target band; this assumes Brent oil prices hover around $100/barrel, though futures are trading near $110/barrel. Underlying inflation (trimmed mean) is projected to rise to 3.8% by June from 3.5%, then fall back to 2.5% by mid-2028. Concurrently, the RBA downgraded its economic growth outlook, forecasting GDP growth to slow to 1.3% by year-end from 1.8%, driven by weaker household consumption and business investment. The labour market is also expected to ease, with unemployment peaking at 4.7% (up from 4.3%). These revisions directly reflect the 'global energy shock from the Gulf', including a one-third surge in domestic fuel prices—partially offset by a halving of fuel excise duties—and heightened uncertainty prompting potential 'much more protracted disruption to global energy supply' if the Strait of Hormuz remains closed into 2027.

How is the RBA responding policy-wise to rising inflation and slowing growth, and what assumptions underpin its tightening path?

The RBA is responding with monetary tightening: it raised interest rates by a quarter-point to 4.35%—the third hike of the year—and reversed all easing delivered in 2025; it uses a technical assumption of 60 basis points of total tightening this year, reaching 4.70%, equivalent to 'a little over two rate rises'. This path reflects concern that 'survey measures of households' short-term inflation expectations had increased sharply', and that 'it was not clear if financial conditions were restrictive even after two rate hikes'. The RBA also explicitly considered adverse scenarios—including Brent crude peaking at $145/barrel and the Strait of Hormuz remaining closed until Q1 2027—to stress-test its baseline, noting that 'a much larger pullback in spending by households and businesses in response to heightened uncertainty would be expected to create more spare capacity... and result in inflation returning to target sooner than otherwise'.

Australia Central Bank Warns of Rising Inflation, Slower Growth as Oil Shock Bites

May 4, 2026

The Reserve Bank of Australia raised inflation forecasts to nearly 5% and downgraded growth outlooks due to a global energy shock from the Gulf. Policymakers anticipate higher interest rates and potential GDP contraction if Strait of Hormuz disruptions persist.

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