The recent oil shock has led to falls in Australia’s consumer and business confidence, but so far, there are few signs of a marked slowdown in activity, according to Reserve Bank of Australia Assistant Governor Sarah Hunter.

Supply Shocks and Inflation

Hunter stated that supply shocks create difficult trade-offs and that if inflation expectations start to drift up, some period of low inflation and higher unemployment might be needed. The RBA has raised interest rates three times this year to 4.35% to head off a global energy shock from the Iran war.

The possible resolution of the Iran war in June sent oil prices sliding back to pre-war levels, and had markets wagering interest rates have likely peaked, with just 15 basis points of tightening priced by the year end. However, Brent crude futures hit a high of $76.38 a barrel on Wednesday after the U.S. launched new strikes on Iran following attacks on ships in the Strait of Hormuz.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.