Economists say there is a 50-50 chance of a rate rise next month after inflation jumped above 4 per cent -- its highest level in almost seven years.
Another increase of 25 basis points by the Reserve Bank will take the average mortgage interest rate to 9.75 per cent.
Even if rates remain on hold, the 4.2 per cent inflation figure yesterday dashed hopes of a rates cut until well into next year.
And petrol prices are expected to climb to $1.60 a litre within weeks after a surge in crude oil prices.
The Consumer Price Index has jumped 1.3 per cent since December, driven by higher food, fuel and housing costs.
Just last week, most economists believed interest rates had probably peaked.
Treasurer Wayne Swan said inflation was "unacceptably high".
"I think they (prices) demonstrate the pain that people are feeling around the kitchen table, because they're simply unacceptably high," Mr Swan said.
"They underscore the need for a responsible Budget that gets spending under control and that tackles inflation and interest rate challenges."
The Treasurer is due to hand down his first Budget on May 13.
The Singapore Tapas price -- used by oil companies to set wholesale prices -- hit a record $124 a barrel yesterday.
Motorists were paying up to 155.9c a litre at the bowser, and the RACV warned the price could climb another 5c by early next month.
"If the crude price is sustainable, that is if it lasts for more than a week, that will flow through to motorists some time in May," RACV spokesman David Cumming said.He said most Victorians had already filled up for the long weekend starting tomorrow.
"All the service stations I drove past on Tuesday night were completely packed. Motorists know that Tuesday is the best day to fill up," Mr Cumming said.
"That's why I don't understand why some stations put their prices up so high.
"They're not going to sell much fuel at those prices.
"Only a small number of people don't care about petrol prices."
CommSec equities economist Savanth Sebastian said the chance of a May interest rate hike had increased.
"The Reserve Bank aims to keep inflation between 2-3 per cent, but that goal is likely to remain out of reach without any lift in interest rates," Mr Sebastian said.
ANZ head of research Warren Hogan said homeowners would get no relief this year.
"There are no rate cuts coming before Christmas with inflation at these levels," Mr Hogan said.
Welfare groups said many families were struggling to cope with rising bills.
"For the first time ever, people who are on relatively good incomes are coming in to see welfare sector financial counsellors," Cath Smith of the Victorian Council of Social Services said.
Mr Swan said the latest inflation figures showed the Opposition failed to understand the pressures facing families.
"(Treasury spokesman) Malcolm Turnbull doesn't even recognise there's an inflation problem," he said.
Mr Turnbull, who in February said inflation was at manageable levels, yesterday said he had always emphasised the gravity of inflation.
But he said many of the underlying causes of inflation, such as oil prices, were beyond the control of government.
"The global credit crisis is going to put more upward pressure on rates and slow economic growth," Mr Turnbull said.
"That is why I encouraged the Reserve Bank not to raise official rates earlier this year and wait to see how the international situation developed."
Asked if the May Budget would now be even tougher, Mr Swan said: "We will be taking difficult decisions in this Budget when it comes to spending."
Herald Sun 24 Apr 2008
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