RBA warns of 'low tolerance' for delay in lowering inflation

As concerns mount that the Israel-Hamas conflict could drive a sustained increase in global fuel prices, the central bank has flagged it is alert to the risk of higher inflation expectations becoming embedded if the slowdown in price pressures is prolonged.

"The [RBA] board has a low tolerance for a slower return of inflation to target than currently expected," the minutes of the board's October 3 meeting said.

In reaching its decision to hold interest rates steady at 4.1 per cent for the fourth consecutive month, board members "noted that some further tightening of policy may be required should inflation prove more persistent than expected".

While the board meeting was held before the latest Middle East conflict erupted, the minutes showed the central bank was already alert to movements in global oil prices.

In particular, it observed that "progress on reducing headline inflation had been temporarily delayed by higher fuel prices", though it still expected it to decline through the second half of the year.

But since then concerns about the inflation and interest rate outlook have increased because of fears the conflict between Israel and Hamas could spread through the Middle East and disrupt global oil supplies.

World oil prices have surged - brent crude briefly reached above $US90 a barrel early on Tuesday - and ANZ Group chief economist Richard Yetsenga tips they will reach $US100 a barrel in the short term.

While central banks generally "look through" short-lived fluctuations in the cost of fuel and other commodities when setting interest rates, if high wholesale oil prices are sustained they will add to the cost of producing and transporting a wide range of goods and services, potentially driving up inflation.

The situation underlines concerns that the Reserve Bank may consider raising the official cash rate to 4.35 per cent at its board meeting on November 7.

Treasurer Jim Chalmers warned that while inflation was slowing, "it is more persistent overseas and it is expected to also be a bit more persistent here".

"We've seen in other countries that the moderation in inflation is not necessarily a straight line and it can bump around from quarter to quarter," Dr Chalmers said.

But the treasurer said the government was "rolling out" $23 billion of living cost assistance in a way that would not add to inflation, such as electricity bill rebates.

Westpac chief economist Luci Ellis said the current assessment was that there is enough spare capacity in global energy markets to prevent oil prices from spiking too high.

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But Ms Ellis, a former senior official at the RBA, said the central bank will pay particular attention to September quarter inflation figures due out on October 25.

"A surprise there could spur a revision to their forecasts in November and, if it is a big enough surprise, be a consideration at the November board meeting," she said.

Meanwhile, the mood of households appears to have dipped after getting a boost during the school holiday period.

The ANZ-Roy Morgan consumer confidence index dropped 3.7 points last week to 76.4 points - still above the low reached in the wake of the June interest rate hike but far below its long-term average.

ANZ senior economist Adelaide Timbrell said the weakness in sentiment was broad-based, but was particularly marked among those with a mortgage.