Here we go again: Shipping disruptions could pose major risk to interest rate cuts

February 12, 2024

‘Left of field’ shocks to global supply chains such as the tensions playing out in the Red Sea are the biggest risk to inflation and interest rates, the Reserve Bank governor has warned.

Cooling inflation has given homebuyers more confidence to jump into the property market amid forecasts of several interest rate cuts later this year, while those with a mortgage hold out for some repayment relief.

But RBA governor Michele Bullock has warned it’s too soon to rule out future rate hikes just yet.


Addressing her first parliamentary hearing since taking over the top job, Ms Bullock said the main risks to inflation reaccelerating were likely to be unforeseen.

“What we’ve observed over the last few years is that supply shocks can come from left field,” Ms Bullock said.

“We had the pandemic, we had Russia-Ukraine, now we’ve got the Middle East, we’ve got concerns about supply chains there.

“We are seeing an impact on shipping costs and so there’s a potential that there’s some supply issues out there. So that’s a risk.”

Recent attacks on shipping vessels in the Red Sea – through which about 12% of global trade and 30% of all global container shipments pass – have driven up freight costs as ships use longer, more costly shipping routes.

Red Sea shipping disruptions put pressure on freights and supply chains:


NAB chief economist Alan Oster said while the impact remains minimal compared to the supply chain disruptions of the pandemic, it poses a risk to inflation.

“Geopolitical factors remain a risk,” Mr Oster said in the NAB Forward Review report.

“Recent disruptions to shipping through the Red Sea and Suez Canal have seen a spike in freight rates which, if sustained, will add to global inflation and is already causing some factory disruptions.”

Ms Bullock said that while the increases to date have been small relative to those seen during the pandemic, the way households respond is a concern.

“Typically, we would try to look through those sorts of things, but I also highlight that inflation expectations being anchored is important.

“If you keep getting supply shocks, which keep pushing inflation up, at what point do people seem to think well, actually, this is just the new world? So I think we’ve got to be alert.”

A flow on effect

The RBA’s newly updated economic forecasts see Australia’s inflation rate easing to 3.1% by June 2025, although it’s not expected to reach the middle of the 2-3% target range for more than two years.

If realised, inflation will have remained above the target range for four years.

“That’s quite a long time, and we think that if it stays outside of that much longer then it just increases the risks that inflation expectations [rise],” Ms Bullock said.

“When people see things that are in their face all the time, like grocery prices and fuel and those sorts of things, when they see those prices going up quite quickly, they get this in their mind that [inflation will continue to rise].”

The RBA held interest rates at 4.35% in February, but said returning inflation to target within a reasonable timeframe remains the highest priority.

“At this stage, the board hasn’t ruled out a further increase in interest rates but neither has it ruled it in,” Ms Bullock said.

AMP deputy chief economist Diana Mousina said the theory is that inflation expectations influence future actual realised inflation, although questioned how reliable the correlation actually is.

“Central banks pay close attention to inflation expectations, especially in the recent period of high inflation, out of concern that inflation expectations will become unanchored and lead to prolonged high inflation,” she said.

Housing costs and essential items keeping prices elevated

A sharp slowdown in the Consumer Price Index (CPI) over the past year has seen markets price in several interest rate cuts later this year.

Annual inflation cooled to 4.1% in the December quarter, down from a peak of 7.8% a year earlier.


However, while the cost of discretionary items – such as clothing, footwear and furnishings – has eased, the price of essential goods and services have been much slower to respond, which Ms Bullock said poses a risk to inflation reversing.

“Some of the ‘goods’ side has been very kind to us but if some of that reverses and services inflation doesn’t come down enough then we’re not going to be reaching our band,” Ms Bullock said.

CBA head of Australian economics Gareth Aird said the RBA’s 13 interest rate hikes to date have been successful in pulling down the rate of inflation for discretionary goods.

Instead, he said the risks lie within four essential items.

“It has primarily been a tale of four expenditure items; the cost of building a home (good), rent (service), electricity (good) and insurance (service). These are all housing related,” Mr Aird said.


“There will be pockets of both goods and services inflation that prove a little sticky because monetary policy is unable to directly influence price changes for some non-discretionary components of the basket – particularly those influenced by strong population growth.

“But overall we expect ongoing disinflation to be the key theme in 2024.”


CBA expects three rate cuts this year, beginning in September, and a further three cuts in the first half of 2025 to take the cash rate to 2.85%

PropTrack data shows national rent prices have surged by a third in the past two years, with the share of all rental properties sitting vacant more than halving since the pandemic.

While supply chain disruptions pushed up building costs in recent years, the latest inflation data shows these price pressures have cooled dramatically, with labour costs largely responsible for continued price rises.


PropTrack senior economist Paul Ryan said financial pressures look to be easing in housing, with slowing price growth, expectations of lower interest rates, and a slower pace of rental increases.

“This will be welcome news for households feeling cost-of-living pressure,” Mr Ryan said.

Ms Bullock said that while much of the persistent inflation sits within essential items, consumers still have the ability to cut back in other ways.

“What a lot of people do is they downgrade, they move from a [branded item] to a home brand perhaps, or they shop at Aldi, or they look for ways to reduce the costs while still consuming their essentials.

“People make decisions about ‘what do I really need?’ and ‘what can I put off consuming at this point in time?’”



You might be also interested in

Article Banner
If housing is so undersupplied, why are some markets falling in value?
The current state of the Australian housing market is often characterised as undersupplied. Supply is at the centre of government policy approaches to housing, and the latest reporting from Housing
Construction cost growth ‘returns to trend’
A reacceleration in the quarterly pace of growth for national construction costs is suggested to be a return to trend rather than a new surge, according to CoreLogic. The Cordell Construction
Rental market to reach ‘tipping point’ in 2024: Domain
Domain’s Dr Nicola Powell told the Savings Tip Jar podcast the rental market will likely ease some time next year as more renters buy property or move into share houses,
Monthly Housing Chart Pack – January 2024
Here are the must know stats, facts and figures on Australia’s residential property market. Annual growth in home values have seen ups-and-downs while rent values have increased at more than
6 strategies to help you renegotiate your home loan and save money
Home loans are at their most expensive in 11 years, prompting a mad scramble among heavily mortgaged homeowners to either switch lenders or negotiate a better deal with their existing
Richmond: Where you’ll find everything from cheap street food to luxury furniture
Richmond’s Barkly Gardens are popular with locals. Photo: Greg Briggs Bridge Road is back. The news from Richmond has the ailing retail strip shucking off the doldrums and getting a
Home prices set to break new records in 2024, with three cities tipped to outperform all others
Stage three tax cuts, soaring population growth and lagging housing supply could see national property prices rise up to 4% over 2024, and as much as 8% in some capital
Monthly Housing Chart Pack – December 2023
Each month the CoreLogic Research team puts together a Housing Chart Pack, with all the latest stats, facts and figures on the residential property market, such as the combined value
Aussies amp up energy efficiency in homes as cost of living soars
With the cost of living higher than it has been in decades, homeowners and renters are looking for ways to reduce bills and save some money. Those living in homes
V shaped recovery: CoreLogic’s national Home Value Index reaches a new record high in November
Australian dwelling values have regained the losses from the recent downturn and surpassed their previous peak to reach a new record high, CoreLogic’s national daily HVI shows. After reaching a

Get your Free Property Guide.

Here goes your text ... Select any part of your text to access the formatting toolbar.

Get your free Sales Report for Here we go again: Shipping disruptions could pose major risk to interest rate cuts

Get your free Sales Report for Here we go again: Shipping disruptions could pose major risk to interest rate cuts

Subscribe to hear the latest

Start The Conversation Today.

Call us on:

1300 850 730

Request a Callback:

Send us a Message:

Privacy Policy

Get your Free Property Guide

Get your free Suburb Report for Here we go again: Shipping disruptions could pose major risk to interest rate cuts

Privacy Policy

Who we are

Suggested text: Our website address is:


Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection.

An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: After approval of your comment, your profile picture is visible to the public in the context of your comment.


Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.


Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year.

If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser.

When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select “Remember Me”, your login will persist for two weeks. If you log out of your account, the login cookies will be removed.

If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website.

These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue.

For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where your data is sent

Suggested text: Visitor comments may be checked through an automated spam detection service.

Get your Free PDF copy of Make Money Simple Again