Australia is heading towards another interest rate increase, with economists pointing to broadening price pressures despite a fuel-driven spike in inflation.
The Consumer Price Index rose 4.6 per cent in the year to March, according to the Australian Bureau of Statistics, up from 3.7 per cent in February. The jump was driven largely by transport costs, with automotive fuel prices rising 32.8 per cent in a single month.
While the headline figure reflects volatile fuel prices linked to the conflict in the Middle East, underlying inflation remains elevated. The trimmed mean held at 3.3 per cent over the year, indicating that broader price pressures have not eased.
Treasurer Jim Chalmers said the data showed Australians were feeling the effects of global conditions. “These new numbers from the ABS show that inflation ticked up as expected in the month of March, largely because of global pressures,” he said. He added: “These numbers show that Australians are paying a hefty price for the war in the Middle East.”
Fuel costs were central to the increase. “Automotive fuel rose 32.8 per cent in March to be up 24.2 per cent through the year,” Mr Chalmers said, noting that fuel alone added 0.8 percentage points to annual inflation.
Economists say the Reserve Bank is now likely to act.
Luci Ellis, chief economist at Westpac, said: “We reaffirm our expectation that the RBA Monetary Policy Board will raise the cash rate a further 25bps at its May meeting, to 4.35%.”
Her assessment goes beyond fuel volatility. Ms Ellis pointed to growing evidence that higher costs are feeding into other parts of the economy. “Pass-through to other prices is clearly starting, touching everything from building products to takeaway food,” she said.
The labour market remains firm, complicating the outlook. Mr Chalmers said unemployment is still low and wages are growing, factors that support demand even as prices rise
Even where fuel prices may ease, she warned that domestic inflation remains too high. “At 0.8%qtr, the RBA’s preferred quarterly trimmed mean measure of inflation is still too high for the RBA to walk past,” she said.
Housing continues to add pressure, with prices up 6.5 per cent over the year. Electricity costs have also risen sharply, up 25.4 per cent, following the end of government rebates.
The labour market remains firm, complicating the outlook. Mr Chalmers said unemployment is still low and wages are growing, factors that support demand even as prices rise.
Markets are already pricing in the move, with expectations of a 25 basis point increase at the next Reserve Bank meeting running high. Some forecasts suggest further increases may follow if inflation does not ease.
Political reaction has focused on household strain. Pauline Hanson said: “Mortgage holders are bracing for more interest rate hikes after inflation increased from 3.7% to 4.6%.”
The government has moved to ease pressure through a temporary cut to fuel excise, introduced after the period captured in the latest data. Mr Chalmers said the measure had reduced petrol prices in recent weeks, though global oil markets remain volatile.
Treasury expects inflation pressures to persist in the near term. “The expectation is that these oil shock pressures will continue to play out in inflation in our own economy… and broaden out,” Mr Chalmers said.
For the Reserve Bank, the challenge now lies in responding to inflation that is no longer confined to fuel, with domestic price pressures still running above target.
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