Economists at one of Australia's big four banks expect the Reserve Bank to raise interest rates imminently after the central bank's governor issued a dire warning about inflation.
Michele Bullock told a parliamentary hearing in Canberra that it appeared that inflation was worse than the central bank had expected at its last meeting in August.
At the time, Ms Bullock said inflation risked coming in above the bank's forecasts and, if that happened, it might have to raise rates again.
"Developments since then suggest that, although growth in the Australian economy is slowing, some of these upside risks to inflation appear to be materialising," Ms Bullock said on Friday.
With the conditions for a hike appearing to be met, that was enough for Westpac chief economist Luci Ellis to bring forward her rate rise prediction from November to September.
Ms Bullock's testimony to a House of Representatives committee was the latest in a string of hawkish appearances by top RBA officials that have convinced economists and traders that the bank is more determined to get inflation under control, even at the expense of jobs.
Inflation was too high, Ms Bullock said, retiring the bank's narrow path for good.
"The bottom line is that we need to get inflation back down because if we don't, that is a worse outcome across the board," she said.
The Iran war, the AI boom, and a particularly strong El Nino have heaped pressure on energy, food, and tech prices.
"There is little sign of resolution in the Middle East conflict," she added.
The benchmark Brent crude price remained above $US104 a barrel, following attacks by Iran-backed Houthi forces on Saudi Arabian oil infrastructure.
Despite a modest oil sell-off overnight, Commonwealth Bank head of commodities Vivek Dhar warned prices could be forced to rise as high as $US150 a barrel.
Global oil supplies were still diminishing at the same time as China was ramping up oil imports.
Mr Dhar estimated there might be only five to 10 weeks before global oil and fuel inventories run dry.
"Inventory depletion raises the risk that Brent oil futures need to rise to $US150 a barrel to trigger uncontrolled demand destruction (i.e. where high prices force lower demand) in emerging and developing Asian economies," he wrote in a research note.
As firms were increasingly seeing no end in sight to the war and price increases, they were growing more inclined to pass on costs to consumers, which risked entrenching inflation, Ms Bullock said.
Businesses had delayed passing on prices as long as possible, but they could not go on much longer, said Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry.
"Profitability and cash flow are under real pressure, particularly for smaller businesses," he told reporters in Canberra.
Higher for longer interest rates and fuel prices would hit economic growth, but that has been swamped by the AI boom, which has pushed up demand in a way the central bank did not foresee.
"We're just back from the US and in addition to ... the upside risk of inflation from the Middle East, what is also very striking is how strong the AI and tech boom is and has been," bank deputy governor Andrew Hauser said.
After inflation came in hotter than expected in July, money markets have steadily raised the chance of a September rate hike.
Following Friday's hearing, a September rate rise was almost fully priced in, with another hike expected by March.
Advanced economies around the world were entering a higher interest rate environment after recent rises by the Federal Reserve and the Bank of Japan, Treasurer Jim Chalmers said.
"Markets are expecting multiple interest rate hikes in other countries and that's because the war in Iran, which has dragged on and dragged out for more than six months now, has pushed up inflation very substantially."
