Australia’s consumer price index (CPI) has accelerated sharply, rising 4.6% in the year to March – its highest level since 2023 – as fuel and housing costs pushed living expenses higher.
On a monthly basis, headline inflation climbed 1.1%, driven largely by a surge in fuel prices after the Middle East conflict lifted oil prices by 60% and doubled jet fuel costs. Housing expenses also continued to rise, with electricity up 25.4%, new dwelling prices increasing 4.5% and rents climbing 3.7%.
The Australian Bureau of Statistics (ABS) said housing remained the largest contributor to annual inflation, rising 6.5%, followed by an 8.9% increase in transport costs.
For consumers, the data signals ongoing pressure on household budgets, with essentials such as energy, fuel and food expected to remain elevated in the near term.
Underlying inflation keeps RBA on alert
The Reserve Bank’s preferred underlying inflation measure came in at 3.3%, above its 2–3% target band, although slightly below economist forecasts of 3.5%.
Financial markets are now pricing in a strong likelihood of further monetary tightening, with more than an 80% chance of a 0.25 percentage point rate hike at next week’s RBA board meeting.
Inflation expectations are also rising, with ANZ-Roy Morgan Inflation Expectations reaching 6.6%, matching record highs.
Reserve Bank deputy governor Andrew Hauser and chief economist Sarah Hunter have previously said inflation expectations are the “north star” guiding policy decisions, highlighting the importance of keeping price pressures contained.
Rate hikes loom as inflation risks persist
Following the data release, VanEck head of investments & capital markets Russel Chesler said: “Today’s CPI result of 4.6% which represents an increase of 0.9% 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% at its meeting next week Tuesday.
"The full effect of the Iran war and the increase in the oil price continues to feed into the economy. We expect year-on-year inflation to move even higher when the figures for April are released. Many suppliers held off increasing prices in March, food prices are expected to continue to increase with rising fuel and fertiliser costs forcing increases in staples like bread, milk and fresh produce. Coles has increased its own-brand milk prices by 20 cents a litre after being lobbied by dairy farmers.
"We also expect wages to start reacting to rising inflation. Fair work is expected to release its decision on the minimum wage increase, which flows through to about 50% of wage earners early in June. We expect the minimum wage increase which was 3.5% last year to come in higher this year and has the potential to be well above 4% and have a further knock on effect to inflation.
"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%, 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.
"In this environment we prefer HALO companies. Companies with heavy assets and low obsolence, which are difficult to replicate, replace or made obsolete by new technology or AI. Companies we like include Telstra and Transurban which both have strong pricing power which is important in an inflationary environment," Chesler said.
Economic outlook clouded by stagflation risks
BNY APAC macro strategist Wee Khoon Chong said the data confirms an upward inflation trend and reinforces expectations of further tightening.
“Australia’s March annual CPI rose 4.6% y/y from 3.7% in February, the highest since September 2023. Q1 trimmed mean CPI, which is the RBA’s preferred measure, rose 0.8% q/q and 3.5% y/y, confirming the upside inflation trend.
"Today’s data reinforces market expectations of further RBA tightening. While business and market sentiment remain fragile amid geopolitical uncertainty, persistently high oil prices and a tight labour market are likely to sustain upward pressure on inflation, keeping the RBA hawkish.
"We expect a hawkish hike in May.”
Economists have also warned of a potential period of stagflation, where high inflation coincides with weak growth, with the duration likely dependent on disruptions to global energy supply routes.
Markets adjust to rate expectations
Despite the strong inflation print, markets showed mixed reactions. The ASX 200 fell 0.2% to 8,696 points, while the Australian dollar edged slightly lower to US71.76c.
Bond yields declined modestly, with the 3-year yield falling from 4.78% to 4.71%, and the implied probability of a rate hike next week easing slightly to 73%.
Attention now turns to the RBA’s upcoming meeting and updated economic forecasts, which are expected to outline how policymakers plan to balance persistent inflation against growing risks to economic growth and household spending.