Inflation in Australia has surged to 4.6% in the year to March, up from 3.7% the previous month, according to the Australian Bureau of Statistics. Treasurer Jim Chalmers warned that this marks the beginning of an Iran war-linked fuel shock that will ripple through the economy in coming months.
Fuel costs jumped by 33% in March, with the international oil price pushing past $110 a barrel amid the conflict that has closed the Strait of Hormuz. Underlying inflation, excluding volatile items like fuel and electricity, remained steady at 3.3%, suggesting easing price pressures beyond the bowser.
Financial markets are now pricing a 68% chance of a third consecutive interest rate hike by the Reserve Bank at its next meeting on Tuesday, down from 80% before the data. Citi chief economist Josh Williamson described the inflationary headache as 'about to become a migraine', predicting inflation could hit 5.5% by mid-year as fuel costs feed into construction and food services.
The data confirmed that the cost of living will dominate the government's agenda ahead of the 12 May budget. Rents rose 3.7% over the year, outpacing wage growth, while homebuilding costs increased 4.5%. Electricity prices, though down in March, were 25% higher than a year earlier after government rebates expired.
Economists caution that further untargeted cost-of-living support could complicate the RBA's fight against inflation. Commonwealth Bank chief economist Luke Yeaman expects the budget to include some additional household support but warned against a 'big splash' that could add fuel to the inflation fire.
