Fuel shock hits home as inflation jumps and rate hikes loom

Marina Karpathios
03:50pm April 29 2026

A fuel‑driven spike has lifted annual inflation to 4.6 per cent, with signs the shock is feeding into other prices. (Image: Pexels)

New data released today by the Australian Bureau of Statistics (ABS) shows inflation rose 4.6 per cent over the year to March 2026. That is a sharp step up from 3.7 per cent in February and the fastest pace of price growth since late 2023. 

 

“The March inflation data will have the RBA’s inflation warning lights flashing bright red,” says Westpac chief economist Luci Ellis.

 

The Reserve Bank (RBA) places particular weight on trimmed mean inflation - which strips out large and temporary price moves such as fuel - to better gauge the underlying trend. That measure held steady at 3.3 per cent, offering some reassurance but remaining above the Bank’s 2 to 3 per cent target range.

 

For households, the main driver is clear - fuel prices have surged.

 

The petrol pinch

The latest inflation reading was dominated by a global fuel shock tied to the ongoing conflict in the Middle East. Automotive fuel prices jumped 32.8 per cent in March alone, according to the ABS.

 

That jump pushed the broader transport category up 8.9 per cent over the year, reversing modest price falls earlier in 2026. Oil prices climbed above US$110 a barrel during the quarter, and the March data captures the full impact before any policy relief took effect.

 

The federal government’s 26‑cent cut to the fuel excise, introduced on 1 April, is expected to provide some relief in coming months, but it does not appear in these figures.

 

More than fuel

Petrol may be doing the most visible damage, but inflation pressures are broader.

 

Housing remains the heaviest weight in the inflation basket. Prices rose 6.5 per cent over the year, easing from February’s 7.2 per cent but continuing to strain renters and new home buyers.

 

Services inflation also remains elevated. Insurance and financial services rose 2.8 per cent, while clothing and footwear prices climbed 7.1 per cent as retailers passed on higher freight costs.

 

Westpac had expected a firm March quarter inflation result, though the headline outcome exceeded its central forecast.

 

While petrol prices have since unwound some of March’s sharp increase, Ellis says the Reserve Bank is unlikely to look through the fuel shock alone.

 

“The RBA could look through higher fuel prices if that was all that was happening, but it is not,” Ellis says. “Pass‑through to other prices is clearly starting, touching everything from building products to takeaway food.”

 

What this means for your mortgage

Attention now shifts from the ABS to the RBA.

 

For mortgage holders, the policy outlook has hardened. Financial markets are pricing in a strong chance of another rate rise when the RBA meets next Tuesday, which would lift the cash rate to 4.35 per cent.

 

Ellis says the case for a move is clear. Inflation was already higher than the Board was comfortable with before the Middle East conflict and the economy remains “tighter than full employment”, requiring restraint to bring inflation back under control.

 

Ellis points out the RBA has shown little inclination to push back against market expectations, in contrast to overseas central banks that have played down the inflation impact of recent energy shocks.

 

With the federal budget due next month, attention will turn to how the government balances cost‑of‑living support without adding further pressure to inflation.

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