Australia’s inflation rate accelerated sharply in March, with a fuel-driven jump in headline prices reinforcing market expectations that the Reserve Bank of Australia (RBA) will lift interest rates again next week.
The Australian Bureau of Statistics (ABS) revealed that annual CPI rose to 4.6 per cent in the year to March, up from 3.7 per cent in February, as a surge in automotive fuel prices pushed transport costs sharply higher and lifted headline inflation to its highest level since September 2023. While housing remained the largest contributor to annual inflation, the sharpest monthly pressure came from transport after fuel prices recorded their biggest rise since the monthly series began in 2017.
ABS head of prices statistics Sue-Ellen Luke said: “March CPI inflation of 4.6 per cent is up from the 3.7 per cent annual inflation to February.
“Annual CPI inflation is the highest it’s been since September 2023.”
The March data also showed underlying inflation remained elevated, with trimmed mean inflation holding firm on a quarterly basis and suggesting the fuel shock landed on top of already persistent domestic price pressures rather than acting as a one-off external disruption.
Betashares chief economist David Bassanese said the outcome “cements the case for a rate hike at next week’s RBA meeting”, even though the quarterly increase in trimmed-mean inflation was “slightly less than the market feared”.
He said the key issue for the central bank was that Australia was already running beyond productive capacity before the Iran conflict began, leaving the RBA less able than some of its offshore peers to look through another energy-driven inflation shock.
That dynamic, he said, increased the risk that higher fuel costs would seep into inflation expectations and wage- and price-setting behaviour at a time when labour and product markets remained tight, even as other major central banks were expected to stay on hold because of the more mixed growth and inflation effects of higher oil prices.
State Street Investment Management APAC economist Krishna Bhimavarapu similarly argued the March result pointed to intensifying price pressures, warning the pace of acceleration risked overwhelming an economy already constrained by limited spare capacity.
“Inflation jumped nearly a full percentage point from the previous month, pushing the annual rate to its highest level in 30 months, a very clear hint of what is to come.
“The pace of acceleration signals building price pressures that risk overwhelming the economy given its already tight supply capacity.
“While the data can still be read as allowing a hold, we think the RBA should hike and drive the economy into a slow lane now, rather than risk more durable inflation damage later,” Bhimavarapu said.
Looking beyond the May meeting, however, economists were less aligned on how far the tightening cycle may need to run, with several warning the full inflationary effects of the Middle East conflict may not yet be visible in the March numbers.
Tony Togher, head of fixed income, short term investments and global credit at First Sentier Investors, said the March quarter result may offer “some near-term relief” for the RBA because it remained below the central bank’s February forecast for underlying inflation by mid-year, but warned that comfort was unlikely to last.
“The RBA will need to revise its baseline rate expectation to reflect the recent surge in oil prices, which could see it forecasting a higher mid-year peak. This, in turn, would materially influence the Bank’s judgement on how high the cash rate may need to rise to counter inflationary pressures,” he said.
VanEck head of investments and capital markets Russel Chesler said the March print had made a move to 4.35 per cent next week “very likely”, but cautioned against assuming the market’s more aggressive pricing for multiple further hikes would necessarily eventuate.
“Today’s CPI result of 4.6 per cent which represents an increase of 0.9 per cent in year on year inflation since February 2026 was no surprise. It is now very likely that the RBA will increase the cash rate to 4.35 per cent at its meeting next Tuesday,” Chesler said.
“In addition to a May rate hike the market is currently pricing in two additional rate hikes this year, which would take the RBA cash rate to 4.85 per cent, levels not seen since 2010. In our view, this may be overly aggressive.
“The RBA faces a difficult balancing act, containing inflation without placing excessive strain on an already stretched consumer and tipping the economy into recession.”
Global X senior product and investment strategist Marc Jocum said the March result may prove to be only the beginning of a broader inflation pulse, with the initial fuel surge likely to feed into transport, groceries and services over coming months.
“If February was ‘the calm before the storm’, March marked the first real sight of the iceberg. What we’re seeing is only the visible tip above the surface, but beneath it sits a far larger mass of pressure still building, not yet fully visible in the data, but increasingly hard to ignore in what’s coming next,” Jocum said.
He said the second-round effects of rising energy costs could keep inflation higher for longer, leaving the RBA focused not just on next week’s decision but on whether April’s data confirms a broader spread in price pressures across the economy.
Luke said: “Automotive fuel prices rose 32.8 per cent from February to March, which pre-dates the halving of the fuel excise on 1 April. The increase in March is the largest monthly increase since the series began in 2017, reflecting the impact of the conflict in the Middle East on fuel prices.”
Regular unleaded petrol rose 33 per cent between February and March, from 171 cents per litre to 228 cents per litre on average, while premium unleaded increased 30 per cent to 250 cents per litre. Diesel rose 41 per cent over the month, climbing from 181 cents per litre to 256 cents per litre.
Bassanese said the case for further tightening beyond May would ultimately depend on whether the Iran conflict eased and whether the Strait of Hormuz reopened quickly enough to avoid a deeper energy squeeze, adding that if markets stabilised, the RBA was “unlikely to need to raise rates again after next week’s policy meeting”.
