Australia’s inflation rate surged 1.1 per cent in March, driven by a record jump in fuel prices and making an interest rate hike next Tuesday more likely.

The consumer price index, released on Wednesday, rose to 4.6 per cent in the year to March, the first major economic indicator to show the impact of the war in the Middle East.

A measure of underlying inflation – the annual “trimmed mean” – came in at 3.3 per cent. This measure is closely watched by the Reserve Bank of Australia and is also above its 2-3 per cent target band.

For the RBA, which meets next week to decide on interest rates, the message is clear – inflation is moving in the wrong direction again, and quickly.

This is not a normal inflation shock. It is being driven by a sharp rise in global energy prices following the war in the Middle East.

Higher interest rates will not bring down global oil prices. But they can help prevent a fuel shock from becoming a broader and more persistent inflation problem.

Fuel prices are just the beginning

The immediate driver of the March inflation surge is fuel.

Global oil prices have risen sharply, pushing up petrol and diesel prices at the pump.

The Australian Bureau of Statistics said fuel prices jumped 32.8 per cent in March – “the largest monthly increase since the series began in 2017”.

This feeds directly into CPI, making it one of the fastest channels through which global shocks affect domestic inflation.

But fuel is only........

© The New Daily