Headline inflation spiked to 3.5 per cent in the year to December 31, smashing market expectations, while underlying inflation hit 2.6 per cent and is now years ahead of the Reserve Bank of Australia’s official forecasts.

Households felt the greatest pinch from price rises, with non-discretionary inflation, which includes expenses such as food, petrol, housing and health costs, growing a significant 4.5 per cent over 2021.