Australia’s inflation rate has hit a two-year high as the oil shock linked to the Middle East conflict pushes up prices and puts a further squeeze on small and medium businesses.
The Australian Bureau of Statistics has revealed the Consumer Price Index surged 4.6 per cent in the year to March – up sharply from 3.7 per cent in February but marginally lower than some economists had forecast.
Fuel was the driving factor in the spike, as seen by the trimmed mean – which strips out extreme price fluctuations – holding steady at 3.3 per cent, outside the Reserve Bank’s target 2-3 per cent band.
James Keene, Managing Director APAC at Employment Hero, says the data reinforces what many employers are experiencing on the ground. “Today’s announcement only underpins the circumstances that have led to the significant pressures that both households and businesses are feeling right now,” Keene says.
“In reality, this is a significant handbrake that stifles business growth and confidence in long-term planning, and has led to a prioritisation of flexibility and cost control amidst ongoing uncertainty.”
Record Fuel Spike Drives Higher Inflation
The March figure is the highest annual inflation rate since September 2023. The single biggest contributor to the surge was automotive fuel. “Automotive fuel prices rose 32.8 per cent from February to March, which pre-dates the halving of the fuel excise on 1 April,” says Sue-Ellen Luke, ABS head of prices statistics.
Disruption to oil supply through the closure of the Strait of Hormuz saw regular unleaded petrol jump from 171 to 228 cents per litre nationally in March, while diesel surged from 181 to 256 cents per litre – a 41 per cent hike. For small businesses that rely on deliveries, trade vehicles or freight, those numbers translate directly to higher operating costs.
Fuel is not the only pressure point. Housing costs have risen 6.5 per cent annually, and electricity prices are up 25.4 per cent after government rebates expired. Together, these three categories account for the bulk of the headline increase.
While acknowledging the impact of higher fuel costs, Federal Treasurer Jim Chalmers says it’s important to consider the timing. “These figures are from before the government’s temporary cut to the fuel excise took effect but they show why it is necessary,” he says. “Since we halved the fuel excise, we’ve seen petrol and diesel prices fall by at least 70 cents in most capital cities.”
Businesses Are Responding with Caution
The inflation environment is shaping how employers manage their workforces. Keene points to Employment Hero’s monthly Jobs Report data as evidence of a broader shift in hiring strategy. Flexible positions are up 9.2 per cent in small and medium businesses compared to 4.1 per cent year-on-year for permanent jobs.
“Casual roles have grown at more than twice the rate of full-time positions, highlighting a clear preference for short-term workforce strategies as businesses manage rising operating costs,” Keene says.
He adds that wage growth has remained neutral for three consecutive months. “Combined with wage growth that has remained neutral for three months now: 0.0 per cent from December to March. What this points to is an economy that is in a holding pattern, where both businesses and workers are navigating with uncertainty and under significant strain until the situation subsides.”
The full impact of the Middle East conflict on small businesses is still likely to unfold, as price shocks typically take 6-18 months to flow through to the labour market.
Australians Still Want to Back Small Business
Amid the costs squeeze, there is brighter news for small business owners. New Commonwealth Bank has found community loyalty to SMEs remains strong, even as household budgets tighten.
55 per cent of people surveyed say they are willing to pay more to support small businesses they value. 39 per cent admit it is becoming increasingly difficult, revealing a growing gap between intent and spending power, but personal connection is a powerful driver. The research shows 72 per cent of Australians know a small business owner personally and are more likely to shop small as a result.
For SME owners wondering where to focus limited marketing budgets, the data reinforces the importance of word-of-mouth, finding 64 per cent of respondents discover small businesses that way, followed by social media at 49 per cent. Gen Z shoppers are most likely to find new businesses on socials (76 per cent) compared to 65 per cent of Millennials.
What Comes Next for Inflation and Interest Rates
The near-term outlook suggests inflation may climb further before it eases, with economists warning the annual rate could push beyond 5 per cent in coming months.
Markets are closely watching the RBA’s next move on interest rates. The ASX RBA Rate Tracker puts the chance of an increase in May at more than 75 per cent. Even with a smaller-than-expected CPI figure, the Bank must balance competing demands of fighting inflation while not stalling the economy. For SME owners carrying business debt, any further increase in interest rates would add to borrowing costs at an already difficult time.
