Millions of Australians could be hit with the twin blow of soaring petrol prices and higher mortgage repayments amid rising expectations that the US-Israel war on Iran will force the Reserve Bank to hike rates on Tuesday.

Economists at three investment banks have shifted to now predict that the RBA board will increase the cash rate to 4.1% at the conclusion of its upcoming two-day meeting, after the central bank’s deputy governor, Andrew Hauser, said data had “confirmed even more decisively … that our economy currently has limited spare capacity”.

Hauser, speaking to the Conversation’s Michelle Grattan, said: “Further increases of prices from Iran, if that is what we end up seeing – and that is a big if – is not a helpful development from the perspective of our policy discussion.”

Bets on a March rate hike surged after Hauser’s comments, with financial markets now pricing in a 64% chance of back-to-back rate hikes after the February move.

George Tharenou, the chief economist at UBS, said the market had been caught out by Hauser’s “hawkish” comments, and that it appeared that the central bank’s economists would be recommending a rate rise to the board.

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“But we expect this recommendation to be thoroughly debated by the RBA board and hence do not expect a unanimous vote to hike,” he said.

Petrol prices in Sydney and Brisbane averaged $2.18 a litre on Tuesday, $2.16 a litre in Melbourne, $2.12 in Canberra and $1.94 in Perth, according to Motormouth.

That has pushed average weekly petrol bills to a record high of more than $73.15 and up nearly 25% from the February average, according to AMP analysis assuming a typical household using 35 litres a week at $2.09.

Reflecting the climbing potential for higher interest rates, the Australian dollar pushed higher to 71 cents, in defiance of turmoil in global financial markets that would normally trigger selling in the Aussie.

There have been wild gyrations in energy markets as traders react to often conflicting statements from Donald Trump about when the new Middle East war will end.

The Brent crude international oil price benchmark climbed to nearly US$120 this week before collapsing and now sits at US$87.80, according to Bloomberg – 40% higher than at the start of the year.

Hauser in his interview said the central bank was updating its inflation forecasts in response to the shock of higher energy costs, “but it clearly is the case that it’s an upside risk to that projection in February”.

With financial markets now pricing in the potential for a third rate hike by November, the deputy governor said inflation at 3.8% was already “well above our target range” of 2% to 3%.

But he said the board would also consider the prospect that higher energy costs will weigh on the global economy, which would argue against a rate increase next week.

“I think there will be a very genuine debate,” Hauser said.

“Inflation is too high. Higher prices don’t help that debate. But there are arguments on both sides and I think if ever there was a time when board members will earn their meagre salary, it will be this month.”