Mar'26 CPI: RBA’s finger remains on the trigger

Australia's CPI rose 4.6% in the 12 months to March 2026, a sharp acceleration from the 3.7% annual pace recorded in February. The headline number lands well above the RBA's 2–3% target band and, critically, comes ahead of the Bank's policy meeting next week. While the preferred core measure, trimmed mean inflation, held steady at 3.3% annually, unchanged from February - the sheer scale of the headline overshoot, driven by an extraordinary fuel price surge, will likely spook policymakers.

With non-discretionary inflation running at 5.5% and housing costs still up 6.5% annually, the data reinforces the narrative of entrenched price pressures across essential spending categories. We interpret this print as cementing another rate increase at next week's RBA board meeting, as the Bank will find it difficult to look through a headline reading that has now broken materially above the top of the target band. This is despite central banks typically looking through supply driven shocks out of their control. Another 25bps hike at the May 4-5 meeting will undo all the rate cuts from last year and take policy rates back to 4.35%.

Fuel ignites but embers were already glowing

Quarterly CPI rose 1.1% (seasonally adjusted) in the March quarter, lifting annual inflation to 4.6%. The strength was broad: transport jumped 9.2% on the back of fuel, while housing remained persistently high at 6.5% annually. While the fuel spike may prove temporary, continued pressure in housing, education (4.8%) and alcohol and tobacco (4.4%) suggests domestic inflation remains entrenched.

Meanwhile, underlying measures tell a steadier story. Trimmed mean and weighted median both rose 0.3% in the quarter, with trimmed mean at 3.3% annually, suggesting inflation is no longer accelerating but not easing quickly enough. Understandably, with core inflation still above the Reserve Bank of Australia’s target band, the data offers little justification for a pause in tightening. 

On a monthly basis, CPI rose 1.1% in March, driven almost entirely by a 32.8% surge in fuel prices linked to the Middle East conflict. Stripping this out, inflation was far more contained, with trimmed mean at 0.3% and CPI ex-volatiles at just 0.1%. Services inflation was flat in the month, with annual services easing slightly to 3.6% - a modest positive, though partly seasonal. Meanwhile, rents (up 3.7% annually) and new dwelling costs continue to reflect tight supply and elevated input costs. Overall, while the headline spike is externally driven, underlying demand pressures remain resilient and pose ongoing upside risks.