A slight easing in Australia's headline inflation rate before the Iran war will do little to ease the Reserve Bank's fears, as economists expect price growth to bounce back with a vengeance in March.
Consumer prices rose 3.7 per cent in the 12 months to February, down from 3.8 per cent in January, data from the Australian Bureau of Statistics showed on Wednesday.
Trimmed mean inflation - which excludes volatile items to provide a sense of underlying inflation - held steady at 3.3 per cent.
The result came in slightly softer than economist expectations. The headline rate and trimmed mean had been predicted to come in at 3.8 and 3.4 per cent, respectively.
While the data was a little stale, it showed the starting point for inflation before the war was already too high for the Reserve Bank, HSBC chief economist Paul Bloxham said.
He calculated the rise in fuel prices would lift headline inflation to 4.5 per cent in March and, if they remained at current levels, at least 4.9 per cent in April.
"This has left the RBA little 'wriggle room' for inflation to rise further," Mr Bloxham said.
"As such, we think that when the RBA arrives at its May meeting, its key concern will be that inflation is too high, and that this high inflation risks impacting inflation expectations."
He expected the central bank to raise rates again in May, even though by then the bank will be concerned by signs of weakening growth.
Speaking after the central bank raised interest rates earlier in March, governor Michele Bullock said the Iran war would add to Australia's inflation problem, but domestic conditions were already too tight before its outbreak.
Money markets were pricing in at least two more rate hikes by Christmas, which would leave the cash rate at its highest level in 15 years.
Marc Jocum, senior product and investment strategist at Global X, said the inflation print felt like a calm beach without waves just before a storm hits.
"This was February's inflation, frozen in time before Middle East tensions escalated, before oil flows through the Strait of Hormuz came under threat, before fertiliser and food risks seeped back into the system, given that roughly a third of global fertiliser and a fifth of oil supply runs through that critical artery," he said.
"Inflation doesn't politely knock on the door asking if it can come in - it creeps in quietly, then arrives all at once.
"Consumer inflation expectations have surged to a record 6.9 per cent, jumping 1.7 per cent in just four weeks, while mortgage stress is rising too."
The largest contributor to price growth was housing, which rose 7.2 per cent over the year to February, the bureau's head of prices statistics Sue-Ellen Luke said.
Electricity costs were the main factor, rising 37 per cent over the year as government rebates rolled off.
Excluding Commonwealth and state subsidies, electricity prices rose 4.9 per cent.
But strong growth in new dwelling costs (3.7 per cent) and rents (3.8 per cent) will also worry the Reserve Bank.
Transport costs actually fell 0.2 per cent in the year to February, thanks to a 7.2 per cent drop in fuel. But that is set to reverse in March, with some economists predicting fuel could rise by more than 25 per cent.
Treasurer Jim Chalmers said while the data was pleasing, the government wasn't getting carried away.
"The war will make things harder for Australians. It will push inflation up higher for longer," he said.
