In the fourth episode of our QIC Market Watch | Tracking the Iran War series, our Chief Economist Dr Matthew Peter and Senior Economist Lynda Bourke discuss the US-Iran truce, the fall in oil prices from their peak and why markets still appear to be pricing a Middle East premium.
While the truce is consistent with QIC's benign scenario, oil prices remain above pre-war levels. Matthew and Lynda examine what this could mean for inflation, interest rates and growth, and what the latest Australian inflation data tells us about the impact of the oil shock so far.
Key takeaways
- The impacts flowing from the recent US-Iran truce are consistent with QIC's benign scenario
- Brent crude has fallen sharply from its peak, easing pressure on markets and inflation
- Oil remains above pre-war levels, suggesting markets are still pricing a Middle East premium
- In Australia, lower petrol prices have helped headline inflation ease
- Pass-through from the earlier oil shock is still appearing in parts of the economy, including delivery, groceries and construction
- If external cost pressures continue to unwind, the RBA may be able to stay on hold, though domestic inflation pressures remain an important consideration.