Inflation in Australia has jumped to 4.6% for the year to March, up from 3.7% the previous month, and Treasurer Jim Chalmers is blaming an Iran war-linked fuel shock that promises to ripple through the economy like a bad curry. Consumer prices are now growing at their fastest pace in two and a half years, leading financial markets and experts to bet the Reserve Bank will hike interest rates for a third straight meeting next Tuesday, because nothing says 'manage the nightmare scenario' like making borrowing more expensive while growth slows.
Chalmers, ahead of next month's budget, warned that 'inflation is likely to peak higher than this,' but tried to soothe nerves by noting Australia has 'low unemployment' and 'solid wages growth' - presumably enough to cushion the blow from fuel prices that jumped 33% in a single month. The international oil price pushed back above $US110 a barrel overnight, as hopes of an end to the US-Israel-instigated conflict that closed the Strait of Hormuz dimmed further. The strait, a critical artery for global oil and fertiliser flows, is now effectively a no-go zone for tankers.
Fuel costs surged 33% in March, according to the Australian Bureau of Statistics, though that was before the 26-cent cut to petrol excise kicked in. Remove the impact of large price swings - electricity prices were also up sharply as government rebates expired - and underlying inflation was a steadier 3.3%, suggesting that the inflationary headache beyond the bowser eased slightly. Traders responded by trimming bets of an RBA rate hike next Tuesday to 68%, down from 80%, according to NAB. But Josh Williamson, chief economist at Citi, warned the headache was 'about to become a migraine,' predicting inflation would push toward 5.5% by mid-year as soaring fuel costs flow through to construction and food services.
Rents increased 3.7% over the year - faster than wage growth - while homebuilding costs were up 4.5% and likely to accelerate. Electricity prices dropped in March but were still 25% higher than a year earlier, when governments were subsidising power bills. Labor has already halved the fuel excise for three months and announced a GST rebate on petrol and diesel, which has helped cushion the blow for motorists. But economists warn further untargeted cost-of-living support risks complicating the RBA's battle. Luke Yeaman, Commonwealth Bank's chief economist and a former senior Treasury official, expects the budget to include 'some additional support for households' but hopes the government resists the urge to make a big splash. 'This would risk adding fuel to the inflation fire,' he said, presumably with a straight face.