Inflation skyrockets in March, RBA hike almost certain

The Consumer Price Index (CPI) rose 4.6% in the 12 months to March 2026, according to the Australian Bureau of Statistics (ABS).

"March CPI inflation of 4.6% is up from the 3.7% annual inflation to February. Annual CPI inflation is the highest it's been since September 2023," ABS head of prices statistics Sue-Ellen Luke said.

Trimmed mean annual inflation was unchanged at 3.3% in the 12 months to March 2026.

Housing, which is the highest weighted group in the CPI, was the largest contributor to annual inflation in March, with a rise of 6.5%. This was followed by an 8.95% rise in transport.

The rise in transport was due primarily to a 32.8% monthly increase in automotive fuel prices, as a result of the ongoing conflict in the Middle East.

"Automotive fuel prices rose 32.8% 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," Luke said.

BNY APAC macro strategist Wee Khoon Chong said the data reinforces market expectations that the Reserve Bank of Australia (RBA) will continue lifting the official cash rate.

"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," Chong said.

"The focus will be on the updated forecasts in the Statement of Monetary Policy, particularly the near-term OCR path. Markets are currently pricing in just under three hikes by end-2026."

VanEck head of investments and capital markets Russel Chesler said today's inflation read 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," Chesler said.

"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."

Chesler said VanEck is also anticipating 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," he said.

"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."

Chesler said he anticipates three RBA rate hikes by the end of the year, bringing the 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," he said.