March inflation print reaffirms economists’ rate hike expectations
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More news: A spike in headline inflation and underlying inflation remaining above the target band in March have reinforced economists’ expectations that the RBA will lift interest rates by 25 basis points after the next monetary policy board meeting next week.
Commonwealth Bank economist Trent Saunders said that while the print is “slightly below both our estimates and market expectations, this is still a firm outcome and underlying inflation remains well above the RBA’s target band”.
Saunders said this supports the bank’s view that the RBA will hike the cash rate, although the “the decision is likely to be finely balanced, with a risk the Board opts to leave rates unchanged”.
Commonwealth Bank head of Australian Economics Belinda Allen said “we expect another split decision with the softer trimmed mean CPI and recent falls in sentiment surveys likely to bolster arguments to leave the cash rate on hold and wait and see how key indicators track from here”.
Westpac chief economist Luci Ellis also reaffirmed its view for a hike next week following the high inflation print.
“The RBA could look through higher fuel prices if that was all that was happening, but it is not. Pass-through to other (non-fuel) prices is clearly starting, touching everything from building products to takeaway food if the reports we are receiving are any guide,” Ellis said.
“The RBA will be hearing similar stories from firms in its liaison program. We also discern scattered early signs of pass-through in the March CPI data.”
The outlook beyond May is more uncertain, but Westpac still expects two more hikes in June and August respectively.
HSBC chief economist Paul Bloxham said that “the main message from today’s figures was a confirmation that, as expected, core inflation is too high, and was well above the RBA’s target in the first quarter — even before the full impact of the Middle East conflict related energy shock feeds through”.
Bloxham also expects the RBA to hike interest rates next week.
Treasurer warns inflation could peak ‘even higher’ amid Iran War
More news: Treasurer Jim Chalmers has warned that Treasury expects the Iran War could drive headline inflation “even higher before it comes down” after March data for the consumer price index (CPI) spiked to its highest level since September 2023.
Speaking to journalists in Brisbane, Chalmers said “Treasury’s expectation is that inflation is likely to peak higher than this” but flagged that Australia’s inflation rate remains below the US, Japan, Italy, Canada and France.
He also stressed that the government’s move to temporarily halve the fuel excise has “taken the sting” out of fuel prices. The impacts of this measure were not captured in the latest CPI print as they came into effect in April.
Chalmers also said that characterising the economic situation as stagflation is “an oversimplification of what we’re seeing in the economy” as the labour market remains strong.
“We’ve got unemployment still in the low fours. Despite all of the pressures on the labor market, we’ve got pretty good wages growth, and that’s not consistent with the way that we’ve usually thought about or characterised stagflation in economies,” Chalmers said.
Taking questions on the upcoming federal budget, Chalmers flagged that it will be a good opportunity to address intergenerational fairness.
While there has been speculation that the capital gains tax is set for reform, Chalmers said the nature of the government’s tax reform package would be finalised in coming days.
CPI rises 4.6% in 12 months to March amid fuel crisis
The news: The consumer price index (CPI) lifted by 4.6% in the 12 months to March 2026 as the impact of the Iran War flowed through to fuel prices, although the price rise came in below the consensus expectation for a 4.8% increase in the headline figure.
However, trimmed mean inflation for the 12 months to March came in at 3.3%, in line with the market consensus expectation and the rate posted in February. This measure removes the distorting effect of the fuel price shock in March.
The numbers: The CPI increase in the year to March was higher than the 3.7% lift in the 12 months to February and the 3.8% lift in the 12 months to January.
Over the year, Housing (+6.5%), which is the highest weighted group in the CPI, was the largest contributor to annual inflation, followed by transport (+8.9%).
Annual housing inflation was again distorted by the timing of Commonwealth and state government electricity rebates, which are no longer in place. Electricity prices were 25.4% higher than the previous year.
CPI lifted 1.1% on a month to month basis, largely driven by Transport (+9.2%) which was underpinned by a 3.8% increase in automotive fuel prices.
The context: The latest CPI data is the first data set that captures the impact of the Iran War on prices in Australia. It does not capture the impact of the federal government’s temporary halving of the fuel excise, which came into effect on 1 April.
Headline annual inflation is the highest level its been since September 2023, according to ABS head of prices statistics Sue-Ellen Luke.
The high CPI print lends credence to the widely held view that the RBA will increase interest rates at its next meeting in May.
What they said: “Automotive fuel prices rose 32.8% from February to March, which pre-dates the halving of the fuel excise on 1 April,” Luke said.
“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.”
The sources: ABS data, ABS media release
