Source: Kapitales Research

Highlights:

• Inflation rebounds to 4.6% YoY, driven by a sharp 32.8% surge in fuel prices following global oil supply disruptions
• Housing (+6.5%) and transport (+8.9%) lead price pressures, keeping cost-of-living concerns elevated across households
• Core inflation steady at 3.3%, but rate hike expectations rise, with markets anticipating further RBA tightening

Inflation Surges on Global Oil Shock

Australia’s inflation has accelerated again, with the Consumer Price Index (CPI) rising 4.6% annually in March 2026, up from 3.7% in February and marking the highest level since late 2023. Monthly inflation came in at 1.1%, slightly below market expectations of 1.3%, but still signaling renewed price pressure across the economy. The latest reading reflects the early impact of the Iran conflict, which pushed global oil prices above US$100 per barrel and triggered a sharp rise in domestic fuel costs.

Fuel Prices Drive the Spike

Transport inflation surged 9.2% in March and 8.9% annually, largely due to a 32.8% jump in automotive fuel prices—the steepest monthly rise in years. Petrol prices climbed from 171 cents per litre to 228 cents, while diesel rose sharply to 256 cents per litre. This energy-driven shock lifted goods inflation to 5.5% annually, highlighting how global supply disruptions are feeding directly into Australian households.

Housing and Essentials Add Pressure

Housing remained the biggest contributor to annual inflation, rising 6.5%, with electricity costs up 25.4% as government rebates rolled off. Food prices also increased 3.1%, reinforcing pressure on essential household spending. While services inflation eased slightly to 3.6%, overall cost-of-living pressures remain elevated.

Core Inflation Holds Steady

Despite the headline surge, underlying inflation remained stable. The trimmed mean held at 3.3%, in line with expectations, suggesting that inflation is being driven more by volatile components, such as fuel, rather than broad-based demand pressures.

Global Shock Continues to Flow Through the Economy

The ongoing impact of the Iran conflict and the resulting surge in oil prices is now clearly flowing through to the broader economy, particularly via fuel and transport costs. Elevated energy prices are acting as a fresh inflation trigger, reversing earlier signs of easing and reinforcing volatility in headline inflation.

What Has Changed for Policy Outlook 

The Reserve Bank of Australia has implemented two rate hikes so far this year to address ongoing inflation pressures. However, the renewed spike in energy prices has shifted market expectations. Investors are now assigning a strong probability—close to 90%—that the central bank may tighten policy again at its upcoming meeting. The RBA continues to focus on bringing inflation back toward its 2.5% target midpoint, but recent data suggests that task may take longer than anticipated.

What Comes Next

Attention now turns to upcoming central bank decisions globally. The US Federal Reserve is set to announce its latest policy move shortly, which will be closely watched ahead of the RBA’s next meeting in early May. These decisions are likely to shape near-term market sentiment and the direction of interest rates.

Note- All data presented is based on information available at the time of writing.

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