The Reserve Bank of Australia’s chief economist Sarah Hunter has suggested another rate rise was still needed for inflation to be brought back within target - meaning higher unemployment during an oil crisis.

“All else equal, a persistently higher outlook for inflation suggests that interest rates should be raised,” she told the Australian Conference of Economists in Canberra on Wednesday.

“This trade-off cannot be avoided. A central bank can only decide how to balance the impact on inflation and activity, while ensuring that temporary shocks do not become persistent inflation.”

Dr Hunter argued taming inflation would mean higher unemployment.

“We can have inflation closer to target, or the economy operating closer to capacity (the labour market at full employment), but we can’t have both,” she said.

“In short, supply or relative price shocks can create a trade-off for monetary policymakers if they are likely to have a persistent impact on inflation and the broader economy.

“Ultimately, while supply shocks create difficult trade-offs, they do not lessen the importance of maintaining low and stable inflation.”

Headline inflation in May was at four per cent, marking the tenth straight month of the consumer price index being above the RBA’s 2-3 per cent target.

Underlying, trimmed mean inflation was also above target at 3.6 per cent, when volatile price items were excluded.

The jobless rate for that month of 4.4 per cent remained below the level of sustainable full employment, which economists consider to be 4.6 per cent.

“The RBA is mandated to maintain, on average over the medium term, a 2–3 per cent band for inflation and sustained full employment – that is, the current maximum level of employment that is consistent with low and stable inflation,” Dr Hunter said.

“The board will continue to act as needed to ensure inflation returns to target and the labour market to sustainable full employment.”

For inflation to be brought back within target, 37,565 people would have to lose their job by the end of 2027, when the RBA is expecting both headline and underlying inflation to return to the mid-point of its target.

This would occur as unemployment rose to 4.6 per cent for the first time since late 2021 when Sydney and Melbourne were in COVID lockdown.

The Reserve Bank has already raised interest rates three times this year, undoing last year’s relief.

Another 25-basis point increase would take the cash rate to a 15-year high of 4.6 per cent.

Dr Hunter, who is also an RBA assistant governor, delivered her speech after the Brent price of crude oil soared back to $US76 a barrel, marking a weekly increase of six per cent following new US strikes on Iran following an attack on three ships in the Strait of Hormuz.

This marked the highest number of daily attacks since the US and Iran signed a Memorandum of Understanding on June 17, which made financial markets question when uninterrupted oil flows would resume, Commonwealth Bank energy economist John Oh said.

“The reported attack on a Qatari LNG carrier on waters off the Omani coast raises risks on whether safe passage through the strait along the Omani coast can continue to be maintained,” he said.

Slower economic growth, however, is broadly expected by economists and the futures market to see a rate cut in late 2027.

“At the same time, weaker economic activity and so more excess supply suggests that interest rates should be cut, all other things equal,” Dr Hunter said.