Economists are forecasting a significant rise in inflation, anticipated to peak at levels not seen since 2023. Predictions suggest a headline rate of approximately 4.8%, notably surpassing the Reserve Bank of Australia’s (RBA) preferred range of 2-3%.

Trent Saunders, a senior economist at Commonwealth Bank, highlighted in the bank’s recent CPI analysis that March is expected to witness a steep jump in headline inflation. This surge is largely attributed to the spike in petrol prices following the onset of the conflict in Iran.

Saunders anticipates a monthly inflation increase of 1.1%, which would push the annual rate to nearly 4.6%. He notes that the rise in fuel costs alone could contribute 0.9 percentage points to this monthly increase, with petrol prices at the pump escalating by over 30% during the period.

The major four banks in Australia are all predicting a third rate hike on Tuesday. Westpac has even forecasted two additional increases in June and August. The market currently estimates about a 75% likelihood that the cash rate will climb back to 4.35%.

While the RBA has already pulled the trigger on two hikes in as many meetings this year, and there are concerns about a slowing economy, its monetary policy board is expected to make it three from three when it meets next week.

All of the big four banks are expecting a third hike of the year next Tuesday – Westpac has even pencilled two further ones in June and August – and the market is pricing in a roughly three-quarters chance that the cash rate will be pushed back up to 4.35 per cent.

And while there is a chance tomorrow’s inflation read may dampen the case for a rate hike next week – and the roughly $91-a-month blow it would deliver average mortgage-holders – the nation’s biggest bank says it would take something extraordinary to stay the RBA’s hand.

“Quarterly CPI, released tomorrow, will make or break the case for the Reserve Bank of Australia to increase its cash rate,” CBA international economist Samara Hammoud said.

“Financial markets are currently pricing around a 78 per cent chance of a hike.

“There is a risk of a weaker outcome for underlying inflation than consensus.

“However, in our view, it would take a large downward surprise to materially pull down market pricing for a May hike.”

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