The war in Iran could drive up the cost of constructing a new suburban home by 10 per cent or $50,000, with clear signs that building suppliers are already being forced to push up prices.
Westpac on Friday said despite the federal government’s decision to halve fuel excise, levies were being imposed on everything from restaurant meals to haircuts to help offset the impact of the war.
But the Housing Industry Association said the increase was much less, with prices up between $3000 and $4000 for new builds.
The surge in oil prices, which despite this week’s ceasefire are still around $US97 a barrel, has hit motorists and the transport sector after the cost of petrol and diesel jumped almost 50 per cent since the start of March.
But those costs are now starting to work their way through the broader economy.
Based on price changes being made by building supplier firms, Westpac senior economist Justin Smirk said the price of some goods had risen 16 per cent.
He said that while not all products cost more, the number of products being marked up was also starting to climb.
If this continues, price increases on building a new home could jump by $50,000.
Smirk said while the cut in excise, which has sliced 32¢ a litre from petrol prices, delivered some relief to motorists, businesses outside the transport sector appeared to be adding fuel levies to their prices.
He said headline inflation could spike towards 6 per cent next month before only gradually easing to around 4.7 per cent in time for the key Christmas retail period.
“We expect the resulting surge in oil prices to have the largest hit to the consumer price index in the months of March and April before flattening out in May and June. Auto fuel is set to increase again in July, but this is due to the expiration of the recent temporary reduction in fuel excise,” he said.
Commonwealth Bank senior economist Ryan Felsman noted that this week’s Melbourne Institute measure of inflation rose 1.3 per cent in March, the largest monthly increase in its almost 24-year history.
The longer the Strait of Hormuz was closed, the greater the risk of price increases spreading to other parts of the economy, Felsman said, although this may then force the Reserve Bank to embrace further interest rate increases.
“There is a risk that categories like transport, food, clothing and footwear, housing, furnishings and equipment, and alcohol and tobacco increase by more than expected from April onwards, potentially necessitating the need for more aggressive monetary policy tightening,” he said.
HIA chief economist Tim Reardon said while there had been some price increases largely from the imposition of fuel levies, interest from prospective home buyers had remained strong throughout March despite the Reserve Bank’s back-to-back rate rises to start the year.
“We’re seeing an impact in terms of fuel levies but it hasn’t spread beyond that,” he said.
“We remain most concerned about the possible adverse impacts of the coming federal budget.”
Treasurer Jim Chalmers is expected to use the May 12 budget to reveal changes to capital gains tax and negative gearing, which the housing sector has warned will push up prices and reduce construction.
Master Builders NSW on Friday said many of its members had set-price contracts, which meant they would have to absorb the full impact of the war’s inflation pulse through the economy.
“These flow-on effects from the Middle East conflict could not have happened at a worse time for the industry,” the organisation’s executive director, Matthew Pollock, said.
“They are compounding the effects of stubbornly high inflation and the morass of unnecessary, inconsistent and contradictory regulation that is strangling productivity, which are already pushing out time completion time frames and making projects unviable.”
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.