From Wednesday, petrol and diesel costs around the nation will be slashed by 26.3 cents a litre as the federal government moves to head off the worst effects of the war in the Middle East.
That equates to $10.50 on a small 40-litre tank or $21 for Australia's best-selling new car - the Ford Ranger - which has an 80-litre tank.
Independent economist Saul Eslake said while the move would be welcome relief for motorists battling high fuel prices, it would likely lead to higher interest rates over the longer term.
The tax cut would leave drivers with more money in their pockets which they would likely spend in other parts of the economy, driving up inflation, Mr Eslake said.
"What the government giveth in these circumstances, the Reserve Bank may taketh away," he told AAP.
Treasurer Jim Chalmers has said the policy would likely reduce headline inflation by half a percentage point, but the Reserve Bank prefers to rely on underlying inflation, which often ignores fuel prices due to their volatile nature.
Mr Eslake said the fuel tax could also exacerbate existing shortages by driving up demand for cheaper petrol and diesel.
"You would have thought that a part of any sensible response to a threat to supply is to try to reduce demand where you can. (This will) do the opposite," he said.
Fellow economist Chris Richardson said while he understood the politics of cheaper petrol, the economics of the policy were poor.
"There will be joy at the new round of handouts. But they'll come with a sting in their tail. They'll keep inflation higher here for longer," he said.
The Spirit of Tasmania ferry is one of the latest operators to pass on higher costs to customers, imposing a 15 per cent fuel surcharge on all voyages between Geelong and Devonport.
The company was facing an 80 per cent rise in fuel prices, projected to hit its bottom line by more than $50 million, TT-Line chairman Ken Kanofski said in a statement.
Asked about Australia's policy of cutting the fuel excise, New Zealand's Prime Minister Christopher Luxon blasted the idea.
"Our advice is pretty clear: it's poorly targeted, It actually benefits high-income households and it actually encourages fuel use when it's constrained," he told reporters in Wellington.
Alongside the fuel excise cut, the government will also pause the road user charge for heavy vehicles, easing some financial pressure on already-stretched supply chains.
The two policies are expected to cost taxpayers $2.55 billion between April and June.
NRMA spokesman Peter Khoury said despite the cut, petrol prices were likely to continue rising for as long as the war drags on.
"We've broken the record several times, we break it on a daily basis, so cutting the excise won't take long before those prices get back up, and that's going to be the challenge," he said.
State leaders are planning to give up any windfall GST revenue from higher petrol prices and were due to discuss the idea at a meeting on Monday evening.
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