Australia’s headline inflation rate climbed to 4.6 per cent in March – its highest level in two-and-a-half years – due to a surge in oil prices brought on by the Iran war.

The jump in the Australian Bureau of Statistics’ annual consumer price index, from 3.7 per cent a month prior, is the first material sign of the impact of the Middle East conflict on Australia’s economy.

The effective closure of the Strait of Hormuz, through which about one-fifth of global oil transits, led to a 33 per cent surge in fuel prices over the month.

Wednesday’s data release confirms the Reserve Bank’s fears that already high inflation is set to rise further as a result of the oil disruption, but the worst impacts for price growth are still to come.

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Fuel is an input to goods and services across the economy and the majority of second-order impacts were yet to be fully passed through in March.

The central bank’s preferred measure of underlying inflation, the quarterly trimmed mean, rose from 3.4 to 3.5 per cent.

In February, the RBA had forecast the trimmed mean to hit 3.7 per cent in June.

With the follow-on effects of the oil shock set to hit even harder in following months, the clear risk is that inflation will exceed the RBA’s forecast.

Electricity prices were 25.4 per cent higher than 12 months prior as a result of government subsidies rolling off.

Annual headline inflation was the highest it had been since September 2023, said Sue-Ellen Luke, ABS head of prices statistics.

Before the inflation release, markets were pricing in the chance of a rate hike at the RBA’s next meeting in May at about three-quarters, with two hikes fully priced in by Christmas.

Economists at all four big banks predict the RBA will lift the cash rate to 4.35 per cent on Tuesday.

-with AAP