The RBA just raised the cash rate to 4.1%. That is two hikes in two months. The big four banks are tipping a third in May to 4.35%, which would be three consecutive rate rises for the first time since March 2023, back when they were trying to wrangle post-COVID inflation. Two rate hikes in the first quarter of 2026 has added $225 a month to the average home loan, or $2,700 a year. That nearly wipes out the three rate cuts we got in 2025.
Here is the thing though. The vote was 5-4. Nearly half the board voted to hold. That is the first split decision since July 2025. Four members of the RBA’s own board looked at the same data and concluded this was not the right call. And they were right.
The justification is that inflation is still running at 3.8% and the economy is too strong. And look, I will be honest, the numbers before the Iran war were not great. Trimmed mean inflation hit 3.4% in January, above the RBA’s 2-3% target. Housing costs are up 6.8%. Electricity spiked 32.2% after the government rebates expired. Food products rose 3.1%. That is a genuine problem.
And to be clear, that matters. This rate rise was not caused by the Iran war. The inflation figures the RBA used to justify it pre-date the war. If all you want is the clean version, here it is: inflation was already above target, and the board was already arguing about how much patience to show.
But here is what I cannot get past. On February 28, the US and Israel launched strikes on Iran. The Strait of Hormuz, which carries roughly 20% of global oil flows, has become a choke point overnight. Brent crude jumped hard and Australian motorists copped it almost immediately. In regional areas, farmers were already reporting diesel jumps of 50 cents a litre in a single week, with premium diesel above $2.70 a litre and supply worries on top. And the response from the RBA is to raise interest rates.
What the war seems to have done is harden the hawkish case at the margin. The RBA’s own statement says the Middle East conflict poses substantial risks in both directions and could push up near-term inflation through energy prices. So no, this was not a direct war hike. But on a 5-4 vote, it is hard to believe a fresh global energy shock did not stiffen the resolve of the five who wanted to move.
That is not a solution. That is just adding a second problem on top of the first one.
I wonder if the RBA board members on their way into Martin Place this morning to vote on inflicting more pain on millions of Australians even looked out the window. Pump prices in Sydney were hovering around $2.16 a litre for E10 and worse for regular unleaded. Regional diesel buyers are reporting both shortages and sharp price spikes with diesel presently sitting around the $2.70 a litre mark. Did any of them see that and think, maybe these people have been hit hard enough already? Apparently four of them did. The other five did not care.
The RBA’s own framework says to ignore this
I want to be precise about this because I keep seeing people conflate things. The RBA does not directly use headline CPI to make rate decisions. They use what is called the trimmed mean, which is designed to strip out volatile price swings. Fuel is one of the most volatile items in the CPI basket. The ABS literally publishes a separate measure called CPI excluding volatile items that removes fuel, fruit and vegetables entirely.
The whole point of these measures is so that central banks can look through temporary supply shocks and not overreact. The RBA’s own documentation says as much. They built these tools specifically for situations like this.
So when petrol jumps because a shipping lane on the other side of the planet gets shut down, the framework says: do not raise rates in response to this. It is a supply shock. It is not Australians overspending. It is not domestic demand running hot. It is a geopolitical event restricting oil supply and global prices responding.
Michael Plumb, the RBA’s Head of Economic Analysis, said in a speech on February 24 that part of the inflation pickup in late 2025 was driven by volatile items including fuel and travel, and that they expected those prices to ease. That was four days before the war started. Since then, even Treasury analysis reported by the ABC has pointed to the same basic problem: higher oil prices feed headline inflation, but they are an external shock rather than evidence that Australian households suddenly went on a spending bender.
Now, there is a real concern about second-round effects. When fuel goes up, freight costs go up. When freight costs go up, grocery prices go up. That kind of pass-through does eventually show up in the trimmed mean because it is no longer just fuel, it is the price of everything that gets moved on a truck. That part is real. It is just not something a 25 basis point hike can fix.
But we are not there yet. The February CPI data does not come out until March 25. The RBA is making today’s decision based on January numbers that predate the war entirely. They are hiking into a supply shock that has not even hit the official data, on the assumption that it will make inflation worse, using a tool that cannot fix a supply problem.
That is why a wait-and-see approach made more sense. Even in today’s statement, the RBA says consumption growth has been a little below expectations. If the whole point of higher rates is to reduce spending, then a fuel shock that leaves households with less money for everything else is already doing that job. Petrol at these prices is its own rate rise.
It is not just mortgage holders
Every time rate hikes come up, the conversation immediately goes to mortgage holders. And yes, the numbers are grim. On a million dollar mortgage, the February and March hikes together add about $317 a month. Roy Morgan’s modelling shows mortgage stress rising to 26.6% of holders at 4.1%. That is roughly 1.3 million Australians now at risk. Push it to 4.35% in May and that number climbs to nearly 1.5 million.
But this is not just a mortgage story. Renters are getting hit just as hard, and nobody seems to be talking about it.
By the end of 2025, PropTrack had the national median weekly rent at $650, with Sydney at $760. Separate affordability analysis found rents had surged 43.9% over the past five years while wages only went up 17.5% over the same period. You now need a six-figure income to rent comfortably in any capital city.
And when the RBA raises rates, landlords absorb the higher borrowing costs for about five minutes before passing them straight through to tenants. Rate hikes do not lower rents. They increase them. So now renters who are already spending a brutal share of their income on housing are also paying more at the bowser and more at the supermarket, and the institution that is supposed to be managing the economy just made their landlord’s mortgage more expensive too.
How rate hikes are supposed to work and why none of it applies here
Before we get into why this is so frustrating, it is worth understanding what the RBA thinks it is doing when it raises rates. There are three main channels through which higher interest rates are supposed to reduce inflation.
First, a higher cash rate strengthens the Australian dollar on global markets, which makes imports cheaper. That helps with inflation because Australia imports most of what it consumes. Second, higher mortgage repayments reduce the amount of money households have left over to spend each month, so business slows down and it becomes harder for businesses to justify raising prices. Third, higher borrowing costs discourage businesses from taking on debt, which reduces business investment and spending.
That is the theory. Now look at what is actually happening.
The inflation we are dealing with is not being caused by a weak dollar making imports expensive. It is being caused by a physical disruption to global oil supply. No amount of currency strengthening is going to make petrol cheaper when the shipping lane it travels through is constrained. The Australian dollar could hit parity with the US dollar tomorrow and you would still be paying through the nose for diesel in regional Queensland because the problem is supply and risk, not just exchange rates.
The household spending channel does not work either, because the spending driving inflation is not discretionary. Look at the January CPI data. Housing: 6.8%. You cannot opt out of having a roof over your head. Electricity: 32.2%, mostly because the government rebates expired, not because people are running their air conditioning for fun. Food products: 3.1%. Rents: 3.9%. Transport: 1.1% in January, about to go significantly higher because of the fuel shock.
This is not people blowing money on holidays and flat screen TVs. This is the cost of existing. People are not going to stop paying rent because the RBA raised rates. They are not going to stop buying food. They are not going to stop putting fuel in the car so they can get to work. They will absorb the rate hike on top of everything else and have even less money for the actual discretionary spending that keeps the businesses open that employ them.
The business borrowing channel is the only one with any theoretical relevance, and even that is a stretch. Businesses are not borrowing to bid up the price of oil. They are paying more for inputs because of a supply shock. Reducing business investment right now does not fix the supply problem. It just makes businesses weaker heading into what could be a prolonged economic disruption.
So all three channels either do not apply or actively make things worse. And meanwhile, there is a group of people who benefit from rate hikes that nobody in the media seems to want to talk about: people whose houses are already paid off. When rates go up, savings account interest goes up too. If you own your home outright and you have money in the bank, a rate hike is a pay rise. You are not paying a mortgage. You are not renting. You are just earning more on your deposits. The RBA is effectively transferring wealth from people who are still paying off their homes or renting to people who already own everything.
And here is the kicker. The RBA always emphasises that monetary policy operates with lags. Their own communication makes this point repeatedly. When they hike rates today, the effects do not show up for months. The February hike has barely had time to work through the economy. They cannot see the results yet. They have no idea whether the last hike was enough, too much, or not enough, because the data reflecting its impact does not exist yet. And their response to that uncertainty is to hike again, based on January numbers from before the war started, and hope for the best.
This is not data-driven decision making. This is guessing with other people’s money.
And if we are assigning blame honestly, this does not stop at Martin Place. Canberra does not get to shrug and act like this all fell out of the sky. Inflation was already too high before the war. Population growth kept running ahead of housing and infrastructure. Public spending never leaned hard enough against inflation either. You can argue all day about which program deserves the most blame, but the bigger point is obvious: the government had fiscal levers it could have used more aggressively to cool demand-side pressure, and it chose not to.
The feedback loop that nobody at the RBA wants to talk about
Here is where it gets genuinely absurd. Follow the logic through.
Fuel prices rise. Transport costs rise. Freight costs rise. Grocery prices rise. Headline inflation rises. The RBA sees higher inflation and raises rates. Mortgage repayments go up. Rent goes up because landlords pass it on. Households now need more income to cover their housing costs, so they pick up extra shifts or a second job. Getting to that extra work requires fuel. They buy more fuel. That spending shows up in the next quarter’s data. Inflation stays elevated.
Better raise rates again.
At no point in this cycle does anything get cheaper. At no point does a rate hike reduce the price of petrol. At no point does it reopen a shipping lane in the Persian Gulf. All it does is compress household budgets from both ends and then measure the resulting spending as evidence that more compression is needed.
The only way this feedback loop breaks is when the rate hikes destroy enough demand to push people out of work entirely. Not because they stopped buying things they did not need. Because they could not afford to participate in the economy anymore. The RBA does not bring down inflation in this scenario. It just moves the pain from the inflation column to the unemployment column and calls it progress.
At what point does someone at the RBA look at the results and accept that the approach is not working? When unemployment hits 6%? 8%? When homelessness rises because families who were already choosing between the mortgage and the fuel bill got pushed past breaking point? When regional towns dealing with fuel rationing also start dealing with mass mortgage defaults?
What a normal household is actually dealing with
Forget the macro for a second. Here is what this looks like for a real person.
You have a mortgage, or you rent. Either way, your housing costs have gone up over the past year and just went up again. You are paying a lot more a month on fuel than you were before the war started. Your grocery bill is up because everything that moves on a truck costs more. Your electricity bill is up because the government subsidies ended. And as of this afternoon, the RBA just added another few hundred dollars a month to your mortgage, or your landlord is about to add it to your rent.
None of this is because you spent too much. None of this is because the economy is overheating with luxury purchases. It is because a war started, a shipping lane got squeezed, and the institutions responsible for managing the economy cannot tell the difference between Australians living beyond their means and Australians trying to get to work.
What should actually happen
Complaining is easy. So here is what the government and the RBA could actually do right now if they wanted to help instead of making things worse.
Do not hike again in May. The damage from today is done. But the February CPI comes out on March 25. That will be the first data point that actually reflects the Iran war fuel shock. The RBA made today’s decision based on pre-war January numbers. Four of its own board members voted against it. If the May data shows that the supply shock is temporary, which is what central banks are supposed to assess before acting, then hiking a third time would be indefensible. CBA’s Gareth Aird has already argued the RBA should look through any spike in petrol prices. The RBA’s own analytical framework is built to filter out exactly this kind of volatility. Start using it.
Cut the fuel excise. The federal fuel excise is now 52.6 cents per litre. GST then sits on top of the final pump price. There is direct precedent for temporary relief. The Morrison government halved the excise in 2022 for six months during the post-COVID fuel spike, cutting it from 44.2 cents to 22.1 cents per litre. But Treasurer Chalmers has already ruled it out. His position is that the government has other cost of living measures in place, like tax cuts and cheaper medicines. With respect, cheaper scripts do not help when you cannot afford to drive to the pharmacy.
Bring back energy rebates. The Energy Bill Relief Fund ended on December 31, 2025. Households were getting up to $300 a year in the 2024-25 program, then $150 in the second half of 2025. Now it is gone. That is a big part of why electricity showed up as a 32.2% increase in the January CPI. The government let the rebates expire, electricity costs spiked, and that spike is now being used as part of the justification for rate hikes. So the government removed a cost of living buffer, the removal of that buffer pushed inflation higher, and now the RBA is raising rates in response. Households are paying for the same policy failure twice. Reinstating energy rebates would directly reduce headline inflation and take pressure off household budgets at the same time.
Give the ACCC actual teeth on fuel pricing. Chalmers wrote to the ACCC asking them to monitor fuel retailers for price gouging. That sounds good until you realise the ACCC cannot actually do much in real time beyond watch and report. Former ACCC head Allan Fels has made that point before, bluntly. If the government is serious about protecting consumers during a supply shock, the ACCC needs enforcement powers with real consequences, not another polite request to keep an eye on things.
Freeze CPI indexation on the fuel excise. This one is almost comically stupid. The fuel excise is indexed to CPI twice a year, in February and August. So when inflation goes up, the fuel excise goes up too. Which pushes fuel prices higher. Which pushes inflation higher. Which pushes the excise up again at the next indexation. The government is literally taxing inflation with more inflation. The February 2026 indexation factor was 1.019, which pushed excise higher again this month. Freezing indexation during a fuel crisis is the bare minimum.
Subsidise freight for essential goods. Fuel price spikes do not just hit you at the bowser. They hit you at the supermarket, the hardware store, and everywhere else that relies on trucks to move product. In regional Australia, where everything travels further, the impact is worse. A targeted freight subsidy on essential goods like food and medicine would limit the pass-through effect that turns a fuel shock into a grocery shock. This is not a radical idea. Other countries have done it during energy crises.
Encourage remote work. Right now. As an emergency measure. This is the one that nobody in government is talking about and it is sitting right there.
We proved this worked. During the pandemic, millions of Australians worked from home. Businesses did not collapse. Productivity went up in many sectors. Companies led with work from anywhere policies, hired on that basis, and used it as a recruiting tool. Then the moment the crisis was over, they rugpulled their workers. Atlassian made remote work part of its identity, then last week cut 1,600 staff as it pushed harder into AI. They are not alone. Block cut nearly half its workforce last month. Tech layoffs have already pushed past 45,000 globally in 2026 so far.
So now we have two problems colliding. A fuel crisis that makes commuting painfully expensive, and a wave of AI-driven layoffs dumping people into a job market where the cost of driving to interviews, relocating, or commuting to a new role is higher than it has been in years. If more roles were remote-friendly, the labour market could actually function during this. Instead, corporate Australia went the other direction. Robert Half research found that 39% of Australian employers planned to mandate five days a week in the office for 2025, up from 36% in 2024. The average number of mandated office days increased from 3.43 to 3.64 days per week. Eighty-four per cent of employers said they were influenced by other companies doing the same thing. It is a domino effect driven by peer pressure, not evidence.
The justifications are always the same. Synergy. Collaboration. Culture. Mentoring junior staff. And some of those concerns are real for some roles. But right now we are in a fuel crisis. Regional communities are already dealing with shortages and rationing fears. The National Farmers’ Federation is calling on the government to prioritise diesel for agriculture under the Liquid Fuel Emergency Act. Energy Minister Chris Bowen himself called it a national crisis. If constraints on fuel and fertiliser continue, the NFF is warning fruit and vegetable prices could rise 40% to 50%.
And while all of this is happening, millions of knowledge workers who could do their jobs from their kitchen table are instead sitting in traffic burning fuel to get to an office where they will open the same laptop and join the same video calls they could have done from home. Every one of those people commuting unnecessarily is consuming fuel that is not going to the farmer who needs it to sow crops, or the truck driver who needs it to deliver food to supermarkets, or the essential worker who has no choice but to drive.
This is not a philosophical debate about work culture anymore. This is a resource allocation problem during a crisis. If this conflict drags on, the competition for limited diesel between commuters, farmers, freight operators and everyone else gets worse every week. Every litre of fuel that does not get burned sitting in traffic on a freeway is a litre that stays available for someone who actually needs to move.
The government does not even need to mandate it. Just issue strong guidance. Encourage businesses to allow remote work where the role permits it. Frame it as a national interest measure for the duration of the crisis. Give it a sunset clause if that makes the suits more comfortable. But do something, because right now we are burning fuel we do not have so people can drive to offices they do not need to be in, and then raising interest rates because the cost of fuel is too high.
The actual bottom line
The RBA had one tool and it used it today for a problem it cannot solve. Four of its own board members voted against the decision. The government has multiple tools and is choosing not to use any of them. Chalmers will not cut the excise. He will not bring back energy rebates. The ACCC has little real-time bite on price gouging. The fuel excise just went up again in February because it is indexed to the inflation that fuel prices are helping cause. And millions of Australians are burning fuel they cannot afford to commute to offices they do not need to be in because their employer read an article about synergy.
Meanwhile, the people who pay for all of this are the families in Western Sydney, in Toowoomba, in regional Queensland, who just got told their mortgage is going up again so they can drive to work tomorrow and spend even more doing it. Happy St Patrick’s Day.