‘Foregone conclusion’: Likely interest rate hike on Tuesday from the RBA to wipe out last year’s three cuts

Three quarters of panelists in a survey by comparison site Finder expect a hike which will bring the cash rate up to 4.35 per cent.

This will undo the three cuts the RBA handed down last year when post-pandemic inflation was easing.

Pressure has mounted on the central bank as inflation spiked to 4.6 per cent in the year to March after the fuel shock sent prices soaring.

VanEck’s Cameron McCormack said a hike was essentially locked in on Tuesday.

“The RBA hiking rates today appears to be a foregone conclusion,” Mr McCormack said in a statement.

“Inflation was already proving sticky before the escalation of conflict in the Middle East, with price pressures evident across services, housing and food.

“The recent spike in oil prices adds another layer of complexity, and we are yet to see the full impact flow through to headline inflation.”

Trimmed mean inflation – the middle 70 per cent of price changes which cuts out volatile costs – remained steady at 3.3 per cent in the year to March.

However, this is outside the central bank’s 2-3 per cent target band.

Both types of inflation were already high before the fuel price shock hit as high government spending, a private sector rebound and low productivity pushed the economy to its limit.

Economists argue that government spending, which remains at its highest share of the economy in 40 years outside the pandemic, drove the pre-Iran war rise of inflation.

Treasurer Jim Chalmers has hit back against this, but did concede government spending played some role in demand.

“We haven’t seen this big uptick in inflation because of government spending, but government spending, as I’ve said on heaps of occasions, is obviously part of aggregate demand,” Mr Chalmers told reporters on Monday.

“Where we can play a helpful role rather than a harmful role in the amount of aggregate demand in the economy, obviously we look for ways to do that.”

Another two hikes are factored in for 2026, bringing the cash rate to 4.85 per cent by December.

This comes as unemployment remains low at 4.3 per cent, another factor pushing the RBA to lift rates.

Saul Eslake, from Corinna Economic Advisory, is one of the economists predicting the RBA will hold the cash rate and pointed to the movement of trimmed mean inflation.

Trimmed mean inflation has remained within a 0.5 per cent range since December 2024, dipping to 2.8 per cent in June 2025 before slowly climbing back up.

“Although headline inflation rose sharply in March, ‘underlying’ inflation was unchanged from February at 3.3 per cent,” Mr Eslake said.

“If ‘underlying’ inflation hasn’t risen further, the RBA doesn’t need to raise rates again in May (since it’s already raised them twice this year).

“It can afford to ‘wait and see’ what happens to inflation expectations.”

Some economists warn another hike is essential to killing ‘stagflation’, when stagnant economic growth is matched by high unemployment and inflation at the same time.

Concerns have grown the oil shock could push the economy towards a 1970s-like energy crisis when stagflation was heavily present.

AMP’s chief economist Shane Oliver said that some level of stagflation was “inevitable” as high inflation from the oil crisis would clash with reduced consumer spending.

“It’s sort of baked in that we are going to see higher inflation just on the basis of the fuel price rises we’ve already seen,” Mr Oliver said.

“Then we’re going to see slower economic growth as people cut back their spending in response to having to spend more on fuel.”