Decoding How Middle East Geopolitics Drives Imported Inflation in Australia

Australia's imported inflation, as far as the official figures show it, is a price problem concentrated in oil and the goods made from oil, not a broad rise in the cost of everything arriving by ship. Almost 80 per cent of the refined energy Australians use comes from overseas, so a closure at the Strait of Hormuz reaches the import price index before it reaches a petrol pump: that index rose 6.2 per cent through the year to June 2026, the biggest quarterly rise the Australian Bureau of Statistics has recorded since December 2021. No official Australian series carries a single number called imported inflation, and that gap is itself part of the story.

Headline inflation is falling, the underlying measure is not

The Consumer Price Index rose 3.5 per cent in the 12 months to July 2026, down from 3.8 per cent in the 12 months to June (ABS). The trimmed mean — which strips out the largest price rises and falls of the month to show the underlying trend — was 3.6 per cent, unchanged from June. The annual CPI has fallen every month since March, from 4.6 per cent to 3.5 per cent, while the trimmed mean has edged up from 3.3 per cent to 3.6 per cent.

Australian CPI and trimmed mean, year-ended, March-July 2026 (ABS)

Automotive fuel rose 7.5 per cent in July, after falling for three months in a row. The ABS attributes part of that to higher world oil prices and part to the partial unwinding of the federal government's fuel excise relief, and does not separate the two on that release. Annual transport inflation moved from 0.1 per cent in June to 1.6 per cent in July.

The route from the Gulf to an Australian bowser

Almost 80 per cent of Australia's demand for refined energy products, on an energy-equivalent basis, is met by imports (In Depth The Impact Of Higher Global Energy Prices On The Australian Economy). Most come from Singapore, South Korea and Malaysia, and most Asian refiners buy their crude oil from the Middle East. Australia holds about 30 days of diesel and jet fuel and about 45 days of petrol. Global crude prices are around 40 per cent of the final retail fuel price, and a change in them reaches the pump within one to two weeks.

Fuel is a small part of the shopping basket and a large part of business costs. Fuel for cars is about 3½ per cent of the CPI basket; fuel directly makes up 3.3 per cent of it and about 2 to 2½ per cent of the cost of producing and distributing the rest of the basket. Around 90 per cent of Australia's diesel consumption is by businesses.

On 3 March 2026 Westpac published scenario work, drawing on Oxford Economics model results, that assumed the Strait of Hormuz was closed to oil, LNG and container trade (Middle East Conflict Note 3 March 2026). The note puts the Strait as the main route for 20 million barrels a day of oil and about 30 per cent of global container shipping, and has Brent, the international crude benchmark, opening almost 14 per cent higher at US$82.37. Westpac states these are model results, not a forecast of the conflict.

The June quarter broke the import price series

The ABS Import Price Index measures the prices of goods landed in Australia (ABS). It rose 5.7 per cent in the June quarter 2026 and 6.2 per cent through the year to June 2026; the ABS called its release "Import prices record biggest rise since December 2021". The March quarter reading was 0.1 per cent and the only other large move since March 2025 was 3.3 per cent, so June is a breakpoint in the series rather than the continuation of a trend.

Import price changes, June quarter 2026, selected categories (ABS)

The ABS attributes the 47.1 per cent rise in petroleum and related products to the closure of the Strait of Hormuz restricting global supply and pressuring oil prices, and the 25.1 per cent rise in fertilisers to higher urea prices driven by that closure and by export restrictions in China and Russia. Plastics in primary forms rose 26.3 per cent as higher crude oil and petrochemical costs flowed through supply chains. Through the year, petroleum rose 67.7 per cent, while telecommunications equipment fell 11.7 per cent and clothing fell 8.7 per cent. This is a commodity-chain event, not broad-based import price inflation.

The export side of the same shock is smaller: the export price index rose 1.1 per cent in the quarter and 3.9 per cent through the year, with petroleum exports up 22.7 per cent and coal up 5.4 per cent. Westpac says New Zealand is more exposed than Australia because it has no offsetting export income, while Australian LNG and coal export prices rise (Middle East Conflict Note 3 March 2026).

What reaches households

Sarah Hunter, an Assistant Governor of the Reserve Bank of Australia, set out the arithmetic on 19 May 2026. A 10 per cent rise in domestic fuel prices adds a bit over 0.3 percentage points to headline inflation over one to two quarters, because fuel is 3.3 per cent of the basket (Sp Ag 2026 05 19). The indirect effect, through higher input costs, leaves the price level 0.2 to 0.25 per cent higher over one to two years. Full pass-through normally takes one to two years, and can be faster when the increase is large, inflation is high and the economy is running near capacity. Petrol prices rose 36 per cent at their peak and diesel by more, and the shock is expected to add around 0.4 percentage points to underlying inflation in the March quarter 2027, with no split between the imported and domestically generated parts.

Reserve Bank research released the same day estimates that more frequent price changes by firms accounted for between ½ and 1¼ percentage points of the pick-up in Australian inflation over 2022 and 2023. Liaison with firms found fuel surcharges raised at the start of supply chains and some construction firms reviewing prices for new contracts.

The Reserve Bank's August 2026 statement says June quarter inflation "remained elevated … against the backdrop of ongoing domestic capacity pressures and some effect from higher input costs due to the Middle East conflict" (RBA). Headline inflation was 3.9 per cent year-ended that quarter, weaker than expected, largely on lower retail fuel and travel prices, while the trimmed mean stayed at 3.6 per cent.

The forecast assumes the conflict fades

Reserve Bank of Australia inflation forecasts, year-ended, August 2026 and May 2026 statements (RBA)

In May 2026 the Reserve Bank expected headline inflation to peak at 4.8 per cent and the trimmed mean at 3.8 per cent in the June quarter 2026; the outcomes were 3.9 per cent and 3.6 per cent (RBA). The August statement expects higher fuel and other conflict-related costs to push consumer prices up until around mid-2027, after which those pressures fade. The central forecast assumes the conflict de-escalates gradually, shipping through the Strait partly recovers, oil prices fall but stay above pre-conflict levels, and the gap between refined fuel and Brent returns to its historical average by early 2027. The stated key risk is a material escalation.

The cash rate has been 4.35 per cent since the Reserve Bank raised it in May 2026; the Monetary Policy Board left it there in August 2026, and market pricing at the time implied about a 50 per cent chance of an increase by the end of the year (RBA). Reserve Bank modelling finds that a 10 per cent increase in oil and LNG prices, even sustained for two years, would reduce the level of Australian GDP by less than 0.1 percentage point, which makes this a price-level event rather than an output event (In Depth The Impact Of Higher Global Energy Prices On The Australian Economy).

What no official figure states

The ABS trade price release does not split the 6.2 per cent through-year rise into conflict effects, exchange-rate movements, freight or tariffs, and reports no oil price in Australian dollars (ABS). The Reserve Bank states that the contribution of oil within global supply chains to import prices is more difficult to quantify (Sp Ag 2026 05 19). Its August 2026 outlook gives no number for the conflict's share of June quarter 2026 inflation and no direct measure of the import price rise passing into the CPI (RBA). A commentary published on 21 April 2026 by a senior lecturer at the UNSW School of Economics frames the shock as arriving when inflation is already above target and warns that a policy mistake can prolong a temporary crisis, but gives no numeric estimate of imported inflation for Australia (Oil Price Shock Australia Inflation Stagflation Risk).

The nearest official quantities for 2026 are the import price index at 6.2 per cent through the year to June and the Reserve Bank's statement that it cannot quantify the oil content of supply chains. The imported part of Australia's inflation is real and measurable at the border; once inside the economy, it is left unquantified.

Dates ahead

ABS CPI figures for August 2026 are due on 30 September 2026 (ABS). The September quarter international trade price indexes are due on 29 October 2026 (ABS). From February 2027 the ABS moves its CPI release to the fourth Wednesday of each month. The Reserve Bank expects conflict-related cost pressures to wane from mid-2027 and trimmed mean inflation to reach 2.5 per cent by early 2028 (RBA).

Nothing here is financial, legal or investment advice. Every figure is published by its named source and carries the date it was published; figures may since have changed.