Consumer prices have surged by the most in more than 20 years, with the cost of living up 5.1 per cent over the past year.

The last time inflation was this high was in June 2001, when prices rose 6.1 per cent largely from the effect of the recently introduced 10 per cent Goods and Services Tax.

You have to go back to December 1995 to find an equally high reading (5.1 per cent) that was not affected by the GST introduction.

Australian consumer prices jumped 2.1 per cent in just the first quarter of this year, according to the latest data from the Bureau of Statistics (ABS).

Critically, the Reserve Bank's preferred measure of inflation, which strips out the most extreme price moves, came in at 3.7 per cent, which is well above its 2-3 per cent target and adds to pressure for interest rates to start rising as soon as next week.

This was the highest annual level of so-called underlying inflation since March 2009, just before the Reserve Bank started its last cycle of interest rate increases between October 2009 and November 2010.

The official cash rate target peaked at 4.75 per cent in that month.

May 'in play' for a rate hike

Marcel Theiliant from Capital Economics said one of the key quarterly underlying inflation figures came in at 1.4 per cent, which was the highest since 1990.

"Trimmed mean inflation is now higher than at the start of any tightening cycle since the full-fledged launch of inflation targeting," he noted.

"To be sure, we still expect the bank to wait until its June meeting before hiking interest rates as it has pledged to wait for the release of the first quarter wage figures later this month and a move before the federal election on 21st May is unlikely.

Other economists are now not so sure that a rate rise next week is off the table.

"A good deal of the inflation observed in the quarter relates to supply-side disruptions that the RBA would typically 'look-through'," observed Sean Langcake from BIS Oxford Economics.

"But the increasing breadth of inflationary pressures and growing upstream disruption in China means that the May board meeting is in play for a rate hike."

ANZ's economics team concluded the inflation figures were strong enough to bring forward their forecast for the first rate hike from June to next week.

"We now expect the RBA to hike by 15 basis points next week," they wrote in a note.

Some are even stronger in their views, with George Washington University assistant professor of economics Steven Hamilton arguing for an oversized rate rise when the RBA board meets on Tuesday next week.

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"Based on higher-than-expected figures for both headline and underlying inflation, the RBA should raise rates by 0.4 [percentage points] next week — not doing so risks the appearance of being influenced by the election," he tweeted.

"If they delay and inflation gets even worse, that would be a very bad look."

Which prices increased most?

The ABS said the biggest contributors to the 2.1 per cent price increase over the quarter were a 5.7 per cent surge in building costs for new homes, an 11 per cent jump in fuel prices and a 6.3 per cent increase in tertiary education fees.

The rise in new dwelling prices came from a combination of rising building material and labour costs in the construction sector, and the wind-down of the government's HomeBuilder subsidy that had previously been shielding customers from that increase in costs.

Fuel prices rose for the seventh consecutive quarter, with the biggest annual increase since Iraq invaded Kuwait in 1990.

The ABS recorded a record-high $1.83 per litre unleaded petrol price during the March quarter, although petrol prices have eased slightly in the current quarter due to a temporary six-month halving of the government's fuel excise, saving motorists about 22 cents a litre.

The ABS said the rise in university fees reflected the continuing impact of the federal government's changes to student contribution bands and fees introduced last year.

Food prices also rose substantially, which the ABS said was due to a combination of rising transport, fertiliser, packaging and ingredient costs as well as COVID disruptions and restocking of animals amid favourable weather.

The biggest contributors to a 2.8 per cent quarterly jump in food prices were vegetables (up 6.6 per cent), soft drinks and juices (up 5.6 per cent), fruit (up 4.9 per cent) and beef (up 7.6 per cent).

Overall, grocery prices surged 4 per cent over the first three months of the year, with state government 'Dine and Discover' type vouchers resulting in smaller price rises for restaurants and takeaway food.

Many other grocery items, such as toilet paper and paper towels, also recorded steep price increases over the quarter.

While the surging cost of goods (up 6.6 per cent) drove most of the price increases over the past year, the cost of services also rose 3 per cent, which will be of some concern to the RBA as it indicates strong domestic price pressures and not just supply bottlenecks.

A concern for many households will be the 6.6 per cent jump in the cost of essential goods and services over the past year, more than the price rise for non-essential purchases.