March CPI hot, but falling fuel prices offer the RBA a pathway to an unlikely hold

March inflation accelerates as trimmed mean meets forecasts

Today’s inflation update for March has come in hot, but not as hot as feared. Headline consumer price index (CPI) rose 4.6% in the 12 months to March, up sharply from 3.7% in February, but below the 4.8% consensus expectation.

The trimmed‑mean measure for March held steady at 3.3% year‑on‑year (YoY), as expected. The first quarter (Q1) 2026 trimmed mean, the Reserve Bank of Australia’s (RBA) preferred underlying measure, rose 0.8% quarter‑on‑quarter (QoQ), pushing the annual rate to 3.5%. This was also in line with forecasts and marked the strongest pace since the third quarter (Q3) 2024.

The fuel shock dominates the detail

Delving into the detail, the surge in automotive fuel prices was the clear standout. Petrol and diesel costs jumped 32.8% from February to March alone, marking the largest monthly increase since the series began in 2017.

This surge reflects the direct impact of the Middle East conflict on fuel prices, with average regular unleaded petrol rising from $1.71 to $2.28 per litre.

Weighted average price of automotive fuel chart

RBA’s tight spot: hike likely, but a pathway to an unlikely hold emerges

With both headline and trimmed‑mean annual measures sitting uncomfortably above the midpoint of the RBA’s 2% - 3% target band, there remains a strong probability the central bank will act on its hawkish bias and deliver a 25 basis point (bp) rate hike next week to 4.35%. This would be the RBA’s third increase this year, fully unwinding last year’s 75 bp of rate cuts.

However, a credible counter‑argument for holding rates steady and waiting for more information is now emerging. Petrol prices, which drove inflation higher in March, have fallen sharply in recent weeks, returning to near pre‑conflict levels, as shown in the chart below.

The decline has been driven by three main factors: the federal government’s decision to halve the fuel excise from 1 April, delivering around $0.30 per litre of relief; easing global wholesale petrol prices following signs of de‑escalation in the Middle East; and intensified competition at the pump as independent retailers aggressively cut margins.

Sydney unleaded fuel prices chart

This rapid reversal in one of the largest contributors to March’s CPI increase gives the RBA a potential pathway to an unexpected pause next week. It would allow the board to assess a broader range of incoming economic data, including consumer and business confidence, household spending, employment and the April inflation report, ahead of the 16 June board meeting. It would also provide time to gauge the impact of any budget‑tightening measures in the federal government’s budget, due to be handed down on 12 May.

The chances of such a dovish outcome, while still remote, would improve materially if there were clearer signs of progress towards reopening the Strait of Hormuz between now and next Tuesday. However, with Iran’s recent olive branch failing to include any discussion of its nuclear program, a meaningful breakthrough remains elusive.

Following the CPI release, the Australian interest‑rate market has pared back expectations for a 25 bp hike next week. The implied probability has fallen from around 82% to about 68% at the time of writing, with roughly 10 bp of tightening now removed from the curve for this year.

This easing in rate‑hike expectations saw AUD/USD  fall around 16 pips, slipping from the 0.7178 - 0.7180 area before the data to trade near 0.7162 - 0.7164. Meanwhile, the ASX 200 rebounded roughly 33 points, recovering from the day’s low of 8659.1 to trade near 8692.2, though it remains on track for a seventh straight session of declines.

ASX 200 technical analysis

From the 8262 low recorded on 23 March, the ASX 200 rallied 759 points, or 9.20%, to a mid‑April high of 9021.5. That advance then stalled, with the index slipping back below support from the key 200‑day moving average (MA), currently near 8802.

Looking ahead, the ASX 200 needs to reclaim the 200‑day MA on a closing basis to restore a constructive technical outlook and position for a retest of the 9200 record high. Failure to do so would increase the risk of a deeper correction, with initial support located around the 8600 - 8580 zone.

ASX 200 daily candlestick chart

• _{Source: TradingView. The figures stated are as of 29 April 2026 Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}