Australian households fear double whammy of rate hikes and higher petrol prices will lead to recession

Surging interest rates and petrol prices have stripped more than $1bn a month from Australian household budgets as economists warn of recession risks.Consumers are preparing for rates to surpass their recent highs after the Reserve Bank delivered back-to-back hikes ahead of an inflation spike driven by the US war on Iran.Dougal Warby was among the thousands of Australians who bought their first homes when the RBA was expected to cut its target interest rate from 4.1% to 3.1% or lower by today.On Tuesday, as he approached the one-year anniversary of buying his Brisbane apartment, rates rebounded back to 4.1%, adding more than $200 to his monthly repayments.“We’ve seen two drops, two raises, which pretty much brings us back to square one,” he said. “Unsettled is the word.”Economists have predicted war on Iran will keep oil prices high and slow Australia’s economy while forcing the RBA to hike interest rates at least once more.“If there is a downtown in the economy, if this fuel shortage does continue … if this is a long-term thing, what is the long-term plan?” Warby said.Announcing the interest rate hike on Tuesday, the RBA governor, Michele Bullock, said her plan was to reduce demand in the economy and bring down inflation in the hope that businesses did not keep on passing higher costs to consumers.“I understand that this is this is tough news for people with mortgages,” Bullock said.“But it’ll be much worse if inflation gets built into the fibres, and then we will see the cost of everything going up.”Australia’s 3.3m mortgage-holding households will lose hundreds from their budgets after interest rate rises in February and March, with the two hikes adding $180 in repayments to the typical $600,000 mortgage.Owner-occupiers face having to cut spending if interest rates climb above 6% on average and banks passed on the hike in full, according to Canstar’s Sally Tindall.“It’s not just a double whammy of a one-two hit in February and March to mortgage rates, it’s the additional pressures coming from rising cost of groceries [and] petrol prices,” Tindall said.AMP modelling implies Australia’s near-11 million households are now paying an extra $80 a month in petrol costs since war broke out. Regular unleaded petrol prices have risen by more than 50c to approach $2.30 per litre in the capital cities.petrolUnleaded petrol prices will likely stay above $2 per litre until June, Westpac analysis has found. A three-month war would push prices higher still and see economic growth fall to nearly half its current rate.Inflation is likely to reach 4.6% by June, according to Westpac. It was already at a high 3.8% annual rate in January, which the RBA has blamed on the economy growing unsustainably fast.The big four banks expect the RBA to lift interest rates again when its rate-setting board next meets in May.My Bui, an economist with AMP, said another rate hike would make recession more likely, worsening the crunch on household budgets as the world shudders from the war’s disruption.Consumer spending had already begun to slow early in 2026, according to government and Commonwealth Bank data. An ANZ-Roy Morgan survey on Tuesday found households’ confidence in the economy has plumbed lows not seen since the outbreak of Covid-19.“If we’re starting to see a slowdown, then I think that would force the RBA to be a bit more cautious,” Bui said.Some economists have predicted the opposite is true, with HSBC’s chief economist, Paul Bloxham declaring Australia needs a recession to bring inflation under control.“To get inflation to head back to target, there needs to be a downturn in the economy,” Bloxham said on Tuesday.The RBA governor on Tuesday said recession was not the aim but further declines would be needed in overall spending from consumers, business and government.“We don’t want to have a recession, but if it’s hard to get inflation down then we’re going to have to deal with that, possibly,” Bullock said.