\n<\/p>\n
Andrew Hauser, the Reserve Bank of Australia\u2019s deputy governor, says the \u201cstagflationary shock\u201d from the Iran war is a \u201ccentral banker\u2019s nightmare\u201d, as confidence among Australian households crashed to its lowest level in years.<\/p>\n
Speaking at an event in New York on Tuesday morning AEST, Hauser said the RBA was \u201cjudging the balance\u201d between the damage to the economy from \u201ca big income shock\u201d associated with soaring fuel prices, versus a sharp rise in inflation.<\/p>\n
\u201cIt is the central bankers\u2019 nightmare: the stagflationary shock, with inflation up, [economic] activity down \u2013 judging the balance between those two,\u201d he said.<\/p>\n Climbing consumer prices are typically associated with a strengthening economy, but stagflation is when inflation is rising at the same time as growth is weakening and unemployment climbing.<\/p>\n It presents central bankers with a dilemma as interest rate moves to address one of the two economic problems can make the other worse.<\/p>\n The most extreme version of stagflation was during the 1970s oil shocks, when the jobless rate and inflation both hit double figures, although the circumstances are very different today.<\/p>\n Hauser\u2019s comments came hours before Westpac\u2019s monthly survey revealed spiking fuel costs and higher interest rates had triggered the sharpest drop in consumer confidence since the Covid pandemic.<\/p>\n Matthew Hassan, a senior economist at Westpac, said Australians \u201care being hit by another cost of living shock\u201d as the twin blow of more expensive mortgages and higher pump prices are \u201cagain putting finances under intense pressure<\/a>\u201d.<\/p>\n The confidence index collapsed by 13% to 80 points and back to near all-time lows experienced during the initial onset of Covid and the early 1990s recessionary period.<\/p>\n \u201cA sharp deterioration in expectations<\/a> suggests consumers are bracing for a return to the extended period of weakness seen during the 2022\u201324 inflation fight,\u201d Hassan said.<\/p>\n The survey was conducted after the federal government announced a temporary 26 cent cut to the fuel excise.<\/p>\n Ahead of the Westpac report, Hauser noted that consumer confidence measures had \u201cfallen very, very sharply\u201d.<\/p>\n \u201cI don\u2019t think those surveys necessarily tell you a lot about what consumption is going to do. But if they\u2019re right, we have a big income shock coming our way.\u201d<\/p>\n