Financial markets were pricing in the chance the Reserve Bank would lift the cash rate by 25 basis points on Tuesday at more than two-thirds, after headline inflation surged to 4.6 per cent in March.
Rising fuel prices caused by the US-Israeli war with Iran have amplified the central bank's inflation headache.
Price growth was already well above target before the conflict broke out and sent global energy markets into chaos.
Economists at the Commonwealth Bank, NAB, ANZ, Westpac, AMP, Deutsche Bank, Challenger, JP Morgan, HSBC and Citi all predict Reserve Bank governor Michele Bullock to announce a hike.
That would bring the cash rate back to the peak of 4.35 per cent before the Reserve Bank's short-lived cutting cycle in 2025.
For an average borrower with a $600,000 mortgage, the three consecutive hikes since February will cumulatively add more than $270 a month in interest repayments.
Citi economists Faraz Syed and Josh Williamson expect the board to be less split than in the March meeting, when only five of the nine members voted in favour of a hike.
"Pass through from inflation has been stronger than expected, with construction costs, international airfare prices and food prices all expected to rise over the coming quarters, whether a Middle East peace deal is achieved tomorrow or not," the duo wrote in a research note.
Just as closely watched will be the Reserve Bank's Statement on Monetary Policy, which contains updated economic forecasts by bank staff and provides clues about the future path of interest rates.
IG market analyst Tony Sycamore expects inflation forecasts to be increased in the near term before being lowered further out, reflecting slower economic growth as a result of higher oil prices and interest rates.
For now, spending has remained resilient despite the oil shock, according to Commonwealth Bank payments data.
Although spending growth is expected to soften through the rest of 2026, there are no signs the recent sharp pullback in sentiment has materially changed household spending decisions, CBA economist Ashwin Clarke said.
Spending grew by 6.7 per cent in the first four weeks of April compared to the same period a year earlier, although petrol station spending was elevated, while travel, retail and eating and drinking out were softer.
Broader discretionary spending appears to have held up relatively well, according to transaction data from National Australia Bank.
NAB economists Gareth Spence and Jessie Cameron said rising construction costs would likely contribute to a pick-up in housing inflation.
Prices for building materials were already elevated following the post-COVID-19 pandemic inflation surge, and the war in the Middle East will put further pressure on a broad range of products through higher transport, energy and input costs, especially for plastics such as PVC pipes.
Dwelling approvals had been improving before the conflict, with the trend rate rising to 17,657 in March despite the number of consents falling 10.5 per cent for the month, the Australian Bureau of Statistics reported on Monday.
"However, headwinds are building as higher interest rates and rising construction costs weigh on the sector," CBA economist Lucinda Jerogin said.
"We expect new dwelling cost inflation to pick up in coming months alongside announced construction material cost increases."
