Former RBA assistant governor Luci Ellis has forecast a May rate hike after the Iran oil shock pushed annual headline inflation to its highest level in almost three years.

The annual consumer price index jumped to 4.6 per cent in March, up from 3.7 per cent a month earlier, as the Iran war drove oil prices higher.

The strong inflation result has reinforced the Reserve Bank's fears that price pressures will rise further because of the oil disruption, with the worst effects on inflation still likely to come. 

As a result, Ellis, now chief economist at Westpac, said the Reserve Bank is likely to lift the cash rate by another 25 basis points to 4.35 per cent at its next meeting on May 5. 

She said the bank's 'inflation warning lights' would be 'flashing bright red' after new data showed price pressures were spreading beyond fuel.

'The RBA could look through higher fuel prices if that was all that was happening, but it is not,' she said.

'Pass-through to other non-fuel prices is clearly starting, touching everything from building products to takeaway food if the reports we are receiving are any guide.'

She said policymakers would see 'an imperative to address high inflation' despite concerns about the hit higher rates could have on growth.

Ellis warned there is a base case for 'two further rate hikes after May, in June and August', but warned the outlook beyond next month was 'necessarily less certain'.

'The RBA's experience last year, when underlying inflation popped back up almost immediately after it cut rates, will have nudged some within the RBA to the idea that the cash rate needs to be higher than its previous peak to really get inflation under control,' she said.

If inflation outside fuel cools faster than expected, she said the RBA may not raise rates as much as forecast.

If the cash rate rises to 4.35 per cent in May, as forecast by Westpac, and the Reserve Bank then delivers two further 25 basis point hikes in June and August, the official cash rate would climb to 4.85 per cent by August. 

Constar research shows three additional 0.25 per cent rate hikes could cost a borrower with a $600,000 loan, 25 years remaining, roughly $276 more per month.

Paul Bloxham, chief economist at HSBC, also said a rate rise in May was inevitable.

The key question was whether more would be needed after that, which will depend on how quickly economic activity and the jobs market weaken over the coming period, he said.

'The main message from today's figures was a confirmation that, as expected, core inflation is too high, and was well above the RBA's target in the first quarter - even before the full impact of the Middle East conflict-related energy shock feeds through,' he said.

'We put less weight on this scenario given the starting point for domestically driven inflation.'

Treasurer Jim Chalmers warns the worst is yet to come.

'We recognise that diesel prices, in particular, are still higher than we'd like, and we've also seen global oil prices spike again in recent days, more than $111 a barrel the last time I looked today, and that will obviously impact prices at the bowser going forward,' he said.

'Treasury's expectation is that inflation is likely to peak higher than this, but they are still finalising their forecasts ahead of the budget next month.'