Consumer prices in Australia rose at the fastest pace in 20 years in Q1, as fuel, home construction and food costs soared, increasing speculation of rate hikes as quickly as next week.

The rising inflation comes at a time when Prime Minister Scott Morrison fights a challenging election, where the escalating cost of living becomes a key concern for voters.

The findings also reinforce arguments the central bank no longer needs to hold rates at 0.1% lows and should soon tighten, even as soon as the 3rd May meeting as opposed to June.

As such, markets reduced the odds on an increase to 0.25% next week, though many are still confident of a hike in June due to the 21st May election and the political waves a rate rise may incur.

“We now expect the Reserve Bank of Australia (RBA) to initially hike by 40bp to 0.5% in June,” stated Andrew Boak, a GS Macro economist, who forecasts a series of quarter point moves to an eventual high of 2.5%.

“The combination of above-target inflation, an economy initially resilient to hikes and a more hawkish reaction function skews risks to a steeper and higher path for rates.”

The consumer price index (CPI) rose 2.1% in Q1, surpassing market forecasts of a 1.7% rise. The annual pace increased to 5.1%, from 3.5% the prior quarter and the highest figure since 2001.

Moreover, the trimmed mean rate of core inflation reached a record 1.4% over the quarter, taking the annual rate to the highest since the beginning of 2009 at 3.7%.

“This reflected the broad-based nature of price rises, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy,” said Michelle Marquardt, head of prices statistics at the Australian Bureau of Statistics.