Australians are once again being hit hard at the bowser, with petrol prices climbing sharply and diesel reaching around $3 a litre in some locations. The problem extends well beyond the cost of filling the family car. Australia relies heavily on diesel to move freight, operate machinery, deliver food and transport goods around the country, meaning sustained increases can eventually find their way into supermarket shelves, construction materials, deliveries and everyday services.
That adds another complication to Australia’s inflation fight. Businesses can absorb higher transport and energy costs for a while, but eventually some of those increases tend to be passed through to consumers. With households already dealing with elevated living costs, another round of fuel-driven price increases is exactly what the Reserve Bank does not want to see.
Markets are now pricing around an 82% probability of another RBA rate increase at its 29 September meeting. If the RBA does lift the cash rate again, Australians could effectively feel the inflation problem twice: first through higher fuel, freight and product prices, and then again through increased borrowing costs.
The difficult part is that higher interest rates cannot produce more oil or directly reduce international energy prices. Instead, the RBA can only attempt to cool demand elsewhere in the economy, reducing household and business spending enough to stop higher fuel costs developing into broader and more persistent inflation.
Against this backdrop, gold and silver have been considerably calmer. Gold is sitting around A$6,300 an ounce, while silver remains around A$95 an ounce, with both metals continuing to bob along above their respective 50-day moving averages. Rather than racing higher or breaking sharply lower, they appear to be responding relatively healthily to their current market position.
For gold in particular, continuing to hold above its 50-day moving average is important. After the strong moves we’ve seen this year, some consolidation is not necessarily a bad thing. Holding above this technical support while inflation concerns, higher fuel prices and another potential Australian rate rise play out could provide a stronger base for the next move.
For Australians, the next week therefore brings several major economic themes together. Fuel prices are again feeding into inflation, businesses face another increase in transport costs, households are preparing for the possibility of higher interest rates, while gold and silver remain relatively steady above important technical support.
Diesel is built into the cost of thousands of products before they ever reach consumers. Farms, mines, trucks, construction equipment and freight networks all rely heavily on it, so when diesel rises substantially, the cost of producing and moving goods rises with it.
Not every increase is passed on immediately, but sustained higher fuel prices can gradually work their way through supply chains. That’s why an oil shock can begin at the bowser and eventually appear in the price of food, building materials, deliveries and other everyday goods.
Disclosure: This article is provided for general information and educational purposes only and does not constitute financial advice. Markets can move quickly and past performance is not a reliable indicator of future results. Always conduct your own research and consider your personal circumstances before making investment decisions.
