But economists at investment banking giant JP Morgan still expect the central bank to hold the cash rate at 3.85 per cent on Tuesday.
Markets and the majority of economists, including at the big four banks, incorrectly assume the RBA will attempt to fight the current inflation war as if it were the last, they argue.
The turning point for interest rate expectations came courtesy of a hawkish podcast appearance by RBA deputy governor Andrew Hauser, which caused traders to reprice the chance of a March hike from about one-third to more than two-thirds.
But JP Morgan economists Ben Jarman, Tom Kennedy and Tom Ryan thought his remarks were more balanced than the market appeared to interpret, highlighting "arguments on both sides".
The trouble for the RBA is the conflict will cause prices to rise at the same time as it will push down economic growth - a so-called "stagflationary" event.
This is different to the post-COVID inflation spike, in which the energy supply shock from Russia's invasion of Ukraine interacted with high global growth.Â
That meant there was less risk it would lead to mass unemployment, which the RBA has to manage as part of its dual mandate.
By assuming the RBA would take a more hawkish approach this time around, markets were ignoring the inherent differences between the two cycles, the JP Morgan trio said in a research note.
"There is ... a sense that markets assume central banks will attempt to fight the last inflation war, keen to demonstrate vigilance after 2022's experience," they said.
"That episode was somewhat different, however, in that it was not a pure supply shock, with global growth running at five per cent.
"The implications for growth seem straightforwardly negative if a firmer than usual stance is taken to what is a more conventional supply shock this time."
Finance Minister Katy Gallagher said another increase would be difficult to stomach for mortgage-holders.
"If there is another interest rate increase, it will hit households hard," she told ABC TV on Tuesday.
Coming hot off the heels of a hike in February, another 25 basis point rise would add about $90 in monthly repayments to a typical home loan of $600,000 for an owner-occupied property.
The impact of the war and further rate rises would be factored into the upcoming federal budget, to be handed down in May, Senator Gallagher said.
Treasury was updating its forecasts for headline inflation, which could get into the "mid to high fours", Treasurer Jim Chalmers previously said.
Opposition Leader Angus Taylor said the federal government had exacerbated inflation.
"The Reserve Bank is about to punish mortgage holders from all reports, but because of the government's failures, inflation is homegrown," he told Nine's Today program.
IG market analyst Tony Sycamore said the RBA faced a difficult dilemma, as central banks tended to look through supply-side shocks such as the war.
"However, with inflation already above target, combined with last week's sharp jump in inflation expectations and hawkish communication from deputy governor Andrew Hauser, the RBA has limited room to manoeuvre," he said.
The RBA will want to act quickly to get inflation expectations under control, or face a tougher task to bring down price growth later on.
Weekly inflation expectations lifted 0.6 percentage points to 6.7 per cent in the latest ANZ-Roy Morgan consumer confidence survey, released on Tuesday.
Consumer confidence fell to 68.5 - the index's lowest level since the start of the pandemic lockdowns in March 2020, ANZ economist Sophia Angala said.
