The ASX200 had been up as much as 0.5 per cent in mid-morning trading but plunged 30 points in the space of five minutes after the inflation readout and finished near the lows of the day, down 0.5 points at 7,683.0, while the broader All Ordinaries dropped 0.4 points at 7,937.5.
Data from the Australian Bureau of Statistics revealed consumer prices rose 3.6 per cent in the 12 months to March, down from 4.1 per cent in the year to December, but hotter than the 3.5 per cent rate expected, showing the difficulties central banks face in getting consumer price hikes under control.
"Today's inflation data removes the chance of any near-term rate cut," wrote AMP economists My Bui and Diana Mousina in a client note.
It could even lead the Reserve Bank to consider whether a rate hike was needed, the economists added, although overall they could see the RBA cutting rates by year end.
Westpac also pushed back its expectations for rate cuts following the report, joining ANZ and NAB in predicting the RBA would cut in November.
Westpac chief economist Luci Ellis had previously forecast the RBA would borrowing costs in September, a month that now Commonwealth Bank is alone among the big retail banks in expecting will see a rate cut.
The Australian dollar meanwhile rose above 65 US cents for the first time in 12 days after the consumer price index report, as well as a nearly 10-year high against the Japanese yen and a 10-month high against the kiwi.
The ASX's energy, consumer staples and financials gained modestly on Wednesday, while health care finished flat and the other seven sectors lost ground. Industrials and utilities were the biggest movers, both dropping 0.6 per cent.
In the heavyweight mining sector, goldminers bounced back after Tuesday's selloff. Northern Star rose 1.0 per cent, Newmont added 1.3 per cent and Evolution climbed 0.5 per cent as the yellow metal changed hands at $US2,323 an ounce.
Elsewhere in the sector, BHP fell 0.6 per cent to $45.23, Rio Tinto dropped 0.2 per cent to $129.38 and Fortescue rose 0.7 per cent to $24.76 after announcing that iron ore shipments for 2023/24 would be at the lower range of guidance because of a ore care derailment on December 30 and weather disruptions.
In industrials, Cleanaway plunged 10 per cent to $2.71, giving up most of Tuesday's gains, after denying a media report it was in talks with Seven Group Holdings about a possible takeover offer. Seven Group also denied the report.
In the consumer discretionary sector, Kogan.com had plummeted 27.5 per cent to a three-month low of $5.10 after the e-retailer announced that its revenue fell 2.4 per cent to $105.9 million in the third quarter, compared to expectations for low single-digit growth.
Kogan blamed the drop on it reducing inventories as it positions itself as a more capital-light business.
In the energy sector, Woodside rose 0.5 per cent to $28.57 as shareholders backed the re-election of chairman Richard Goyder but rejected its climate plan.
Finally, in health care, Immutep jumped 16.9 per cent to a two-year high of 45c after the Sydney-based biotech company reported encouraging preliminary results from a trial evaluating its immunotherapy as a treatment for head and neck cancer.
The Aussie was buying 65.22 US cents, from 64.53 US cents at Tuesday's ASX close.
ON THE ASX:
* The benchmark S&P/ASX200 index finished Wednesday down 0.5 points at 7,683.0
* The broader All Ordinaries dropped 0.4 points at 7,937.5.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.06 US cents, from 64.53 US cents at Tuesday's ASX close
* 100.73 Japanese yen, from 99.84 Japanese yen
* 60.85 Euro cents, from 60.60 Euro cents
* 52.33 British pence, from 52.24 pence
* 109.60 NZ cents, from 109.13 NZ cents.
