The Reserve Bank of Australia’s deputy governor, Andrew Hauser, has described the economic fallout from the Iran war as a “central banker’s nightmare”, warning of a stagflationary shock as household confidence plummets.
Speaking in New York, Hauser said the RBA was balancing the damage from soaring fuel prices against rising inflation. “It is the central bankers’ nightmare: the stagflationary shock, with inflation up, activity down,” he said.
Stagflation presents a dilemma for central banks because interest rate moves to tackle one problem can worsen the other. The worst example was the 1970s oil shocks, though Hauser noted circumstances are different today.
His comments came as Westpac’s monthly survey showed consumer confidence crashed 13% to 80 points, near lows seen during Covid and the early 1990s recession. Matthew Hassan of Westpac said Australians face “another cost of living shock” from expensive mortgages and higher fuel prices.
Separately, a NAB business survey found corporate confidence at a six-year low, though business conditions remained steady. AMP economist My Bui said the data points to “tough times ahead” and the RBA will be concerned about inflation expectations given rising business costs.
