As universally expected by economists and financial markets, the Reserve Bank’s monetary policy board on Tuesday lifted its cash rate by 25 basis points to 4.6%, the highest level since October 2011 (at the peak of the mining investment boom).

Treasurer Jim Chalmers has attributed this week’s decision – and the inflation concerns underpinning it – to the war in the Middle East. Others, including shadow treasurer Tim Wilson and some economists, blame it on “excessive” levels of, and growth in, government spending.

In truth both of these factors, and others besides, have contributed to the rebound in inflation and interest rates that Australia has experienced this year.

Oil prices have rebounded from just over US$70 a barrel in late June, when it briefly appeared that the Middle East conflict might be over, to more than US$100 a barrel in recent weeks, now that there seems little prospect of an imminent end to that conflict.

Less well recognised, but no less important, the “crack spreads” between crude oil prices and prices of refined petroleum products such as gasoline and diesel, have remained at elevated levels since the conflict began, and seem unlikely to come down given the damage that has been done to refining capacity in the Middle East and in Russia.

Additionally, the US (the world’s biggest oil producer) and China (the world’s biggest oil importer) appear to have run down their reserves as far as they deem prudent, and so are now exporting less and importing more oil, respectively, than they had been doing in the early months of the conflict.

These influences have been evident in other “advanced” economies which have lifted their interest rates in recent weeks in response........

© The Guardian