By Stella Qiu
SYDNEY, April 29 (Reuters) – Australian consumer prices surged in the first quarter as war in the Middle East drove up energy costs, while core inflation stayed uncomfortably high for policymakers, keeping pressure on for a rate hike next week.
The consumer price index (CPI) jumped 1.4% in the first quarter, the sharpest rise since late 2023, data from the Australian Bureau of Statistics showed on Wednesday. Annual CPI inflation accelerated to 4.1% in Q1, from 3.6%.
The key trimmed mean measure of core inflation, which excludes the most volatile items like fuel, increased by 0.8% in the quarter, just under forecasts of a 0.9% gain. The annual pace picked up to 3.5%, from 3.4%, and further above the Reserve Bank of Australia (RBA) target band of 2% to 3%.
“Today’s CPI print, the first to partially reflect the Strait of Hormuz closure, points to a rate hike from the RBA next week,” said Stephen Smith, partner at Deloitte Access Economics.
“That rate hike is not guaranteed, but Australia’s starting point for inflation heading into this crisis likely leaves the central bank with little choice.”
Still, the lower-than-expected trimmed mean provided some relief as price pressures were not as bad as feared, traders said. The Australian dollar slipped 0.2% to $0.7170, while three-year government bond yields came off earlier one-month highs to be off 2 basis points at 4.70%.
Markets trimmed the odds of a third interest-rate rise from the RBA in May to 76%, from 85% before. A total tightening of 62 basis points is priced in for the rest of the year, equivalent to two and a half rate hikes.
For March alone, CPI shot up to 4.6%, reviving memories of runaway costs after the COVID-19 pandemic. Prices for automotive fuel surged almost 33% in March from February, but the government’s measure to halve the fuel excise from April should alleviate pressures.
WORSE YET TO COME
The data captured only the initial impact from the Iran war, with more pain to come in the second quarter. While a fragile ceasefire hangs in the balance in the Gulf, the Strait of Hormuz remains effectively closed, leaving oil prices hovering around $110 a barrel, up almost 60% from before the conflict.
Treasurer Jim Chalmers warned at a press conference that inflation was likely to peak higher.
“What we are seeing here is largely a story about international pressures playing out at the bowser. But in the coming months, we expect the impact of this oil shock to be felt more broadly across prices, broad enough to impact on trimmed mean data as well,” he said.
The RBA has raised interest rates twice this year to 4.1%, reversing two of the three cuts made in 2025, as policymakers sought to rein in stubborn domestic inflation before the war stoked global price pressures.
Tony Sycamore, analyst at IG, said there is a counterargument for the RBA to keep rates on hold in May and gather more information as petrol prices started to fall in recent weeks.
“This scenario gains traction if the Board believes the acute phase of the inflation scare has peaked and that the trimmed-mean measure now won’t exceed their own 3.7% forecast by mid-year.”
ANZ is still expecting a rate hike in May but that would be the last tightening this cycle, citing the RBA’s desire to preserve gains in the labour market.
“An attempt to engineer a rapid return of inflation to target would come at quite a considerable cost to the labour market. Such a trade-off is unlikely to be desirable for the RBA,” said Adam Boyton, its head of Australian economics.
(Reporting by Stella Qiu and Wayne Cole; Editing by Tom Hogue and Jacqueline Wong)
