The jump in the Australian Bureau of Statistics' annual consumer price index, to 4.6 per cent in March from 3.7 per cent a month prior, is the first material sign of the impact of the Middle East conflict on Australia's economic data.
The effective closure of the Strait of Hormuz, through which about one-fifth of global oil transits, led to a 33 per cent surge in fuel prices over the month.
Wednesday's data release confirms the Reserve Bank's fears that high inflation is set to rise further as a result of the oil disruption, and the worst impacts for price growth are still to come.
Fuel is an input to goods and services across the economy and the majority of second-order impacts were yet to be fully passed through in March.
The central bank's preferred measure of underlying inflation, the quarterly trimmed mean, rose from 3.4 to 3.5 per cent.
That was in line with consensus expectations, even though the headline rate came in lower than analyst predictions of 4.8 per cent.
In February, the RBA had forecast the trimmed mean to hit 3.7 per cent in June.
IG markets analyst Tony Sycamore said there was still a very slim chance the RBA would keep rates on hold at its next meeting on Tuesday, but it would rely on more concrete signs of progress towards reopening the Strait of Hormuz.
"However, with Iran's recent olive branch earlier this week failing to include any discussion of its nuclear program, a genuine breakthrough remains elusive," he said.
HSBC chief economist Paul Bloxham said a rate rise in May was inevitable.
The key question was whether more would be needed after that, which will depend on how quickly economic activity and the jobs market weaken over the coming period, he said.
"The main message from today's figures was a confirmation that, as expected, core inflation is too high, and was well above the RBA's target in the first quarter - even before the full impact of the Middle East conflict-related energy shock feeds through," he said.
The data does not take in government cuts to the fuel excise in April, which has caused petrol and diesel prices to fall by at least 70 cents in most capital cities, Dr Chalmers said.
"We recognise that diesel prices, in particular, are still higher than we'd like, and we've also seen global oil prices spike again in recent days, more than $111 a barrel the last time I looked today, and that will obviously impact prices at the bowser going forward," he told reporters.
"Treasury's expectation is that inflation is likely to peak higher than this, but they are still finalising their forecasts ahead of the budget next month."
Opposition finance spokeswoman Claire Chandler claimed government spending was making inflation worse.
"The sad reality is we're now finding ourselves in very tricky economic circumstances, and the budget is not in a position where it's going to be able to afford to weather those circumstances," she told Sky News.
Electricity prices were 25.4 per cent higher than 12 months prior as a result of government subsidies rolling off, which was significantly pushing up the headline consumer price index.
Annual headline inflation was the highest it had been since September 2023, ABS head of prices statistics Sue-Ellen Luke said.
Before the inflation release, markets were pricing in the chance of a rate hike on Tuesday at about three-quarters, with two hikes fully priced in by Christmas.
Financial markets slightly pared back rate hike expectations following the release.
Economists at all four big banks predict the RBA will lift the cash rate to 4.35 per cent.
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