Any hopes of an interest rate cut later this year have been wiped out by data showing a steep rise in annual inflation to above four per cent - the highest level in nearly seven years.

Economists generally do not expect another interest rate rise at next month's monthly Reserve Bank of Australia board meeting, given the substantial rate increases since last August.

However, financial markets are now pricing in a greater risk of an increase after the next set of inflation data in July, leaving homebuyers on tenterhooks.

The Australian Bureau of Statistics said the consumer price index grew 1.3 per cent in the March quarter for an annual rate of 4.2 per cent, and up from 3.0 per cent in the year to December.

This was the fastest pace of inflation in a quarter since June 2006.

The RBA's preferred measures of underlying inflation contained within the CPI report showed an average annual rate of 4.25 per cent in the year to March, compared to 3.6 per cent previously.

Economists had tipped the CPI to rise to 4.0 per cent and average underlying inflation to 3.8 per cent.

Inflation unacceptably high: Swan 

Commenting on the figures, federal Treasurer Wayne Swan said inflation was "simply unacceptably high".

"They underscore the need for a responsible budget that keeps spending under control, and that tackles inflation and interest rates challenges," Mr Swan told journalists in Canberra.

The RBA had previously predicted a CPI rate of around four per cent and had expected underlying inflation to also increase.

It had also expected to lower its future inflation forecasts in next month's quarterly policy statement, given the "substantial" increase in official interest rates, compounded by independent moves by retail banks in lifting their lending rates.

However, RBC Capital Markets senior economist Su-Lin Ong said the higher starting point from today's figures, coupled with clear pipeline pressures, raises some uncertainty over such a revision.

"The latest inflation report and its details will make for some uncomfortable reading for the RBA," Ms Ong said.

"(But) we do not think it provides a trigger for further tightening given the mounting evidence of weaker activity."

Retail spending weakened in the first two months of this year, demand for home loans has fallen, and consumer and business confidence has slumped under the weight of 12-year high interest rates.

Mr Swan said he would not speculate about the future direction of inflation.

"But my hope would be that we would see some moderation over time, and all arms of policy ... will be directed towards achieving that goal," he said.

Asked if the new figures meant the government would have to look even harder at making cuts in next month's budget, Mr Swan said:
"We will be taking difficult decisions in this budget when it comes to spending.

"And we will do everything that we humanly can to protect the hard-working families of Australia who are being hurt by rising inflation and rising interest rates."