Financial markets are braced for an interest rate rise when the Reserve Bank of Australia board meets next week after annual inflation saw its biggest jump in more than two decades.
The consumer price index for the March quarter surged 2.1 per cent for an annual inflation rate of 5.1 per cent, up from 3.5 per cent previously.
The Australian Bureau of Statistics said these were the largest quarterly and annual rises since the introduction of the goods and services tax in June 2000.
When the GST was launched by former Liberal prime minister John Howard and his treasurer Peter Costello, inflation spiked to six per cent and stayed there for a year.
Treasurer Josh Frydenberg was quick to blame the latest inflation surge on international factors, particularly a further 11 per cent quarterly rise in fuel costs to be 35 per cent higher over the year.
“This is the single, biggest increase in fuel prices since Iraq’s invasion of Kuwait more than 30 years ago in 1990,” Mr Frydenberg told reporters in Melbourne.
“Australia is not immune from the international pressures driving up inflation. The war in Ukraine has seen a spike in fuel prices, gas prices and commodity prices being felt here at home.”
He said this is why the government committed to a temporary, targeted and responsible cost of living package in the March budget.
The first $250 cost of living payments will this week hit the bank accounts of millions of eligible pensioners, income support recipients, veterans and concession card holders.
Slashing fuel excise, along with a fall in global oil prices, had also provided some relief at the bowser after petrol prices surged past $2 a litre during the March quarter.
Even so, shadow treasurer Jim Chalmers said Australians are getting “absolutely smashed”, noting cost of living pressures had been building since before the war in Ukraine.
“On Scott Morrison’s watch, prices are going through the roof, real wages are falling and interest rate rises are about to add to the pain that people feel right around Australia,” he told reporters in Canberra.
Underlying inflation – which smooths out volatile price swings and is more crucial to the interest rate outlook – jumped 1.4 per cent to 3.7 per cent for the year.
It is the first time the underlying rate has been above the Reserve Bank of Australia’s two to three per cent target since early 2010.
The result will put pressure on the RBA to lift the cash rate from a record low 0.1 per cent when its board meets next Tuesday.
Financial markets have priced in the risk of a 0.15 per cent rise in the cash rate to 0.25 per cent, which will mark the first increase since November 2010.
The RBA has previously said it wants to see a meaningful rise in wages before it takes action, and could be wary of moving during a federal election campaign.
But economists now argue global inflation is on the move, and so are other central banks, making the case for a move by the RBA sooner rather than later.
“A record low cash rate of 0.1 per cent is clearly now no longer appropriate for this economy, meaning the Reserve Bank must join other central banks around the world and tighten monetary policy,” EY chief economist Cherelle Murphy said.
“To not do so risks the RBA losing credibility.”
Meanwhile, consumer confidence eased slightly in the past week, coinciding with a modest increase in petrol prices, which ended four weeks of declines.
The weekly ANZ-Roy Morgan consumer confidence index – a guide to future household spending – eased 0.3 per cent to 96.5.
A level below 100 indicates pessimists outweigh optimists.
Colin Brinsden and Marion Rae
(Australian Associated Press)