Australian fuel prices jump $36 per tank as oil hits US$113

Australia's economic outlook has darkened as global oil prices surged to US$113 per barrel overnight. The jump brings the cost near the April peak of nearly US$120. This price spike is the primary reason Treasury officials are preparing to lower their economic forecasts for the December mid-year budget update.

The conflict in the Middle East is driving the price increase. Since the United States and Israel attacked Iran, Australian drivers pay 60 cents more per litre of petrol. For a vehicle with a 60-litre tank, this adds $36 to the cost of a full fill-up. A family that fills up once a week now spends $144 more per month compared to February.

Analysts warn the situation could worsen. The New York Times reported that US and Israeli officials have drafted plans to resume attacks after the American midterm elections. Westpac analysts outlined a scenario where oil prices could reach US$150. The International Monetary Fund issued similar warnings earlier this month. Such an outcome would likely push inflation and interest rates higher. The Reserve Bank may raise rates for a fifth time on 3 November.

Global markets are also showing signs of stress. Heavy spending on artificial intelligence has previously supported the economy, but investors are now concerned about rising corporate debt. This anxiety contributed to a steep sell-off on Wall Street overnight. Community opposition to new data centers may also slow infrastructure development, adding to short-term economic pressure.

Reserve Bank Governor Andrew Hauser described the current mix of high inflation, low growth, and rising unemployment as a central banker's nightmare. Treasurer Jim Chalmers acknowledged the difficulty of the position. He told Politico that the pressures on people are substantial and keep him awake at night. Chalmers noted that while some causes are domestic, the government is also hostage to decisions made in Washington, Tehran, and Eastern Europe.

Domestic factors complicate the picture further. High government spending works against efforts to fight inflation. Productivity growth is slowing, which means the economy reaches its capacity limit sooner and inflation remains higher at lower growth rates. The opposition frequently cites the government's high spending as a reason for persistent price increases.

Chalmers faces a difficult choice for the December update. He could cut the fuel excise tax temporarily to lower petrol prices, but the resulting fiscal cost might make it harder for the Reserve Bank to control inflation. Alternatively, the government could announce large spending cuts. That move would help the central bank but could push unemployment higher in an already weak economy. Chalmers said some causes are beyond Canberra's control, while others, such as cost-of-living help and budget management, remain within the government's influence.