Australia Q1 consumer prices jump as Mideast war drives up fuel costs

SYDNEY, April 29 (Reuters) - Australian consumer prices surged in the first quarter as war in the Middle East drove up energy costs, while core inflation was again uncomfortably high for policymakers, keeping pressure on for a rate hike next week.

The consumer price index (CPI) jumped 1.4% in the first quarter, the sharpest rise since late 2023, data from the Australian Bureau of Statistics showed on Wednesday. Annual CPI inflation accelerated to 4.1% in Q1, from 3.6%.

The key trimmed mean measure of core inflation, which excludes the most volatile items like fuel, increased by 0.8% in the quarter, just under forecasts of a 0.9% gain. The annual pace picked up to 3.5%, from 3.4%, and further above the Reserve Bank of Australia (RBA) target band of 2% to 3%.

The lower-than-expected trimmed mean provided some relief as price pressures were not as bad as feared, traders said. The Australian dollar slipped 0.2% to $0.7170, while three-year government bond yields came off earlier highs to be flat at 4.72%.

Markets trimmed the odds of a third interest-rate rise from the RBA in May to 76%, from 85% before the data, with a total tightening of 62 basis points priced in for the rest of the year.

For March alone, CPI shot up to 4.6%, bringing back bad memories of runaway costs post the COVID-19 pandemic.

"Automotive fuel prices rose 32.8% from February to March, which pre-dates the halving of the fuel excise on 1 April," said Sue-Ellen Luke, ABS head of prices statistics.

"The increase in March is the largest monthly increase since the series began in 2017, reflecting the impact of the conflict in the Middle East on fuel prices."

The data captured only the initial impact from the Iran war, with more pain to come in the second quarter. While a fragile ceasefire hangs in the balance in the Gulf, the Strait of Hormuz remains effectively closed, leaving oil prices hovering around $110 a barrel, up almost 60% from before the conflict.

The RBA has raised interest rates twice this year to 4.1%, reversing two of the three cuts made in 2025, as policymakers sought to rein in stubborn domestic inflation before the war stoked global price pressures.

(Reporting by Stella Qiu and Wayne Cole; Editing by Tom Hogue and Jacqueline Wong)