Australia's headline inflation in February slowed down more than expected as the data predated the airstrikes in Tehran.
The consumer price index or CPI jumped 3.7% year on year to February, lower than the 3.8% growth in January, according to Wednesday data from the Australian Bureau of Statistics.
The CPI was softer than market expectations of a 3.8% rise, but it still exceeded the Reserve Bank of Australia's target range of between 2% and 3%.
Housing was the major driver in the CPI as it climbed 7.2%, higher than 6.8% in the prior month. The rising cost of electricity, along with new dwellings and rents, was the key factor for increased housing prices. It reflects the impact of the end of the extended Commonwealth Energy Bill Relief Fund and other rebates from various state governments. Households have to spend more on electricity after using up the programs' funds.
Westpac senior economist Justin Smirk said the modest increase in new dwellings, which rose 0.1%, came as a surprise.
"Rents were as expected lifting 0.4% in the month while the slightly stronger rise in electricity was offset by an unexpected -0.1% fall in gas & other household fuels," Smirk said. "We are surprised by this moderation in dwelling price inflation as we had been expecting an increase of between 0.3% and 0.4% for the next few months."
Food and non-alcoholic beverages, and recreation and culture were also major factors in the CPI, rising 3.1% and 4.1%, respectively, the ABS said.
"Meals out and takeaway prices increased 3.7% over the past year and prices for both beef and lamb were 13% higher compared to 12 months ago," ABS head of prices statistics Sue-Ellen Luke said.
Meanwhile, transportation slid 0.2%, while automotive fuel prices fell 7.2% from a year earlier.
"Prior to the Middle East conflict, automotive fuel prices fell 3.4% in the month of February, which followed a fall of 3.2% in January," Luke said.
Analysts believe that inflation in the coming months will surge due to the oil price hikes brought by the ongoing military action in Iran.
Westpac predicted that headline inflation might rise up to 5.5% by the middle of the year, while ANZ forecasted it to rise 1.4% quarter on quarter in the first quarter, higher than its previous quarterly expectation of 1.2%. ANZ also expected that the RBA would add another 25 basis points to the interest rate.
"Looking forward, we expect higher energy costs from the Iran war to boost inflationary pressure, adding to the risk that inflation expectations could drift upwards," Commonwealth Bank senior economist Ashwin Clarke said.