Australia: energy drives inflation risk

Australia’s inflation risk is being pushed higher by energy costs just as fund managers and policymakers see fewer easy growth options at home. (investordaily.com.au) MLC portfolio manager Anthony Golowenko told InvestorDaily on April 22 that the firm is looking more aggressively to developed and emerging markets because Australia offers “not a whole lot of growth,” especially among larger companies. He said MLC has added to global listed infrastructure and funded that move by trimming global credit in mid-risk portfolios. (investordaily.com.au) The backdrop is a domestic inflation picture that is still above the Reserve Bank of Australia’s 2% to 3% target band. The Australian Bureau of Statistics said consumer prices rose 3.7% in the 12 months to February 2026, with housing up 7.2%, while trimmed mean inflation held at 3.3%. (abs.gov.au, rba.gov.au) The Reserve Bank’s own February forecasts assumed higher interest rates this year and said growth would slow to below potential from late 2026 as tighter policy worked through the economy. It also said inflation was still expected to be slightly above the midpoint of target by mid-2028, later than it had expected in November. (rba.gov.au) That trade-off has sharpened since the Middle East conflict drove up global energy prices. The International Monetary Fund’s April 2026 World Economic Outlook said the global economy had been disrupted by war in the Middle East, and Australian coverage of the IMF forecast said Australia’s 2026 inflation outlook was revised up to 4.0% while growth was cut to 2.0%. (imf.org, commbank.com.au) Golowenko said Australia entered this period on weaker footing than some overseas markets and remains exposed if disruption to the Strait of Hormuz continues. He also pointed to the Albanese government’s proposed 25% tax on gas exports as an example of how energy policy is now tied directly to inflation and growth debates. (investordaily.com.au) The Reserve Bank’s March meeting showed how narrow the policy path has become. Minutes released on March 31 said higher energy prices had lifted near-term inflation risks, and a separate market summary tied to the decision said the board raised the cash rate by 25 basis points to 4.10% on March 17 in a 5-4 vote. (rba.gov.au, watc.wa.gov.au) For investors, the appeal of offshore assets is partly mechanical as well as strategic. InvestorDaily reported the Australian dollar was trading at US$0.72 on April 22 after reaching a four-year high, which Golowenko said made global investing more attractive on a currency-hedged basis. (investordaily.com.au) Australia is still a major energy exporter, but the current shock is landing through fuel, freight and domestic power costs rather than delivering a simple windfall. The result is an economy where hotter energy prices can slow activity and keep inflation elevated at the same time. (rba.gov.au, commbank.com.au)