Australia Hikes Interest Rates to 4.35% as Middle East War Drives Inflation to 4.6%

Australia's inflation was already above target before the Middle East conflict began, with GDP growing 2.6% in December 2025, above its potential rate, and the unemployment rate steady at 4.3% in March. Underlying inflation stood at 3.5% over the year to the March quarter. The conflict then drove global oil prices sharply higher, pushing headline inflation to 4.6% in March, with fuel prices alone contributing 0.8 percentage points. Australia's Reserve Bank responded by raising the cash rate 25 basis points to 4.35%. Headline inflation is now expected to peak at 4.8% in mid-2026, with underlying inflation staying above 3% until mid-2027, before easing to 2.5% by mid-2028. The cash rate is projected to reach 4.7% by the end of 2026, as GDP growth slows to 1.3% and unemployment rises to 4.7% by mid-2028.