Inflation has climbed to its highest level in nearly three years, raising concerns that borrowers may face a third consecutive interest rate hike at the start of the year.
New data from the Australian Bureau of Statistics shows that the consumer price index rose by 4.6% in the 12 months to March, up from 3.7% in February. Although this increase was slightly below economists’ forecasts, it remains well above the Reserve Bank of Australia’s target range of 2–3% and marks the highest level since 2023, when inflation was easing from a peak above 7%.
The main driver of the surge was a sharp rise in petrol prices, triggered by the war in Iran and the resulting closure of the Strait of Hormuz. Fuel costs jumped by 32.8% in March, the largest monthly increase on record, according to the ABS.
However, there was some relief for borrowers, as the trimmed mean inflation rate—the Reserve Bank’s preferred underlying measure—remained steady at 3.3%.
Before the release of this data, financial markets had already priced in a high likelihood of an interest rate increase at next week’s Reserve Bank meeting, with major banks also forecasting a hike.
Analysts noted that transport costs have played a major role in pushing inflation higher. Political Editor Charles Croucher said rising fuel prices have intensified existing inflation pressures, leaving the economy in a worse position than before.
Economists also warned that further rate hikes could follow. Oxford Economics Australia’s Harry McAuley said oil price shocks are particularly challenging for central banks and suggested that a prolonged closure of the Strait of Hormuz could force multiple rate increases this year.
Treasurer Jim Chalmers also cautioned that inflation could worsen in the coming months if the conflict in Iran continues. He noted that Treasury expects inflation to peak higher before easing again, with final forecasts still being prepared ahead of next month’s budget.
Chalmers added that government fuel excise cuts have helped soften the impact of rising fuel prices, preventing inflation from rising even further.
