‘Shock After Shock’: Central Bank Says Israel-Hamas Conflict May Impact Inflation

Rockets are fired toward Israel from the Gaza Strip, as seen from southern Israel, on Oct. 16, 2023. (Leo Correa/AP)

Conflict in the middle east could impact inflation, Australia’s central bank head has warned in her first public appearance in Sydney.

Reserve Bank of Australia governor Michele Bullock highlighted oil prices rose in the immediate aftermath of the “shock” of the Israel and Hamas conflict.

The crude oil price has risen by more than 6 percent since the war started, trading economics data shows.

Higher oil prices can drive up petrol prices, which impacts inflation. The oil price has risen from US$82.790 per barrel at market close on Oct. 6 to US$88.0214 at the time of writing.

“The initial response to that shock was oil prices rose again. One of the things you would have noticed—I’m sure you’ve noticed, I’ve noticed—is the price of petrol even prior to that had been going up, and so that’s likely to keep oil prices elevated as people are a little bit unsure about how it’s going to impact supply of oil,” Ms. Bullock said.

“At the same time, there might be a concern that all of these sort of defence issues, these sort of war issues, might impact lower growth in places like Europe.

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“And that’s a challenge as well because if that slows the world economy, that doesn’t help either. So again it’s really a bit of a balancing act here the potential implications.”

Inflation Impact

More than 1,400 Israelis have been killed and at least 155 people kidnapped, including babies, since Hamas terrorists launched an attack on Israel on Oct. 7.

Speaking at the AFSA Annual Summit Panel in Sydney, Ms. Bullock highlighted the “shock” of the war could impact inflation.

“I think at the moment we are a little bit more worried about the potential inflation implications of this. Typically when we think about shocks to supply that increase prices, you think well, that’s probably ok, it will wash out,” she said.

“But the problem is that we’ve just got shock after shock after shock. And the more that keeps inflation elevated, even if it’s from supply shocks, the more people adjust their thinking. And the more people adjust their inflation expectations, the more entrenched inflation is likely to become. So that’s the challenge.”

Ms. Bullock noted inflation expectations in Australia are elevated at the moment.

“If inflation expectations continue to be really elevated year after year, and we don’t bring inflation back down, that will mean that it will be harder to bring that down in the future,” she added.

Hospital Blast Update

Meanwhile, the Australian Government warned citizens stuck in the Middle East to get out as soon as possible on Tuesday.

“The situation in the Middle East is deteriorating rapidly ... take the first flight offered to you and get back to Australia as quickly as you can,” Home Affairs Minister Clare O'Neil alerted Australians on Wednesday.

“We are urging people, if you are in Israel at the moment and you want to leave, leave immediately.”

On Wednesday, at least 500 people were killed when a hospital was struck in Gaza City. Israel denied any involvement in the attack, despite many media outlets reporting they were involved.

“Media outlets around the globe were quick to run Hamas’ headlines—without fact-checking. We now know that an Islamic Jihad rocket aimed at Israel misfired and hit the hospital in Gaza,” Israel Defense Forces said on Oct. 18.

The Israeli side noted at 18.59 a rocket aimed at Israel “misfired and exploded,” the exact same time a hospital was hit in Gaza.

U.S. officials have so far agreed with this analysis, with President Joe Biden indicating the blast was caused by “the other team.”