The S&P/ASX200 fell 10.8 points by midday, down 0.12 per cent, to 8,699.9, as the broader All Ordinaries lost 7.2 points, or 0.08 per cent, to 8,927.8.
The top-200 fell as much as 45.4 points in early trade, but pared its losses after the consumer price index rose 4.6 per cent in the year to March.
The outcome was just under a projected 4.8 per cent, but up from 3.7 per cent in the 12 months to February.
The US-led war on Iran has roiled markets, lit a match under inflation expectations and put a handbrake on global economic growth hopes.
The Reserve Bank's preferred trimmed mean annual price growth figure was unchanged at 3.3 per cent, but remains outside the central bank's two to three per cent target range as markets brace for a widely expected interest rate hike at its meeting next week.
Energy and utilities stocks outperformed the broader market, as oil prices surged on fading hopes of a deal to reopen the Strait of Hormuz, and reports Iran's leadership has become dominated by hardliners.
The United Arab Emirates announced it will leave OPEC and OPEC+ on May 1, amid a widening rift between it and Saudi Arabia.
The move could ultimately boost global crude supplies, but is unlikely to have much of an effect on shipments or price while the Hormuz Strait remains effectively shut.
Closer to home, Woodside shares improved 1.3 per cent to $32.81 despite extreme weather impacting March quarter production, while Santos swung one per cent higher.
Coal producers also improved, while uranium stocks sold off as underwhelming figures from an artificial intelligence leader raised questions about the AI narrative.
"A Wall Street Journal report on softer-than-expected user growth and revenue targets at OpenAI once again had investors questioning the sustainability of sky-high AI spending and whether big tech can continue footing the bill for those massive data centre buildouts," IG market analyst Tony Sycamore said.
Raw materials stocks were under pressure as mega miners BHP, Rio Tinto and Fortescue lost ground.
Gold miners were mixed as the precious metal fell below $US4,600 ($A6,413) an ounce, the All Ordinaries gold sub-industry shaving 0.1 per cent.
Financials faded a modest 0.2 per cent as three of the big four banks traded lower, while ANZ bucked the trend with a 0.4 per cent advance to $36.18 as it flagged plans to buy out its French payments joint venture partner Worldline.
Consumer discretionary stocks were up 0.5 per cent by midday, rebounding from four-week lows in a broad-based advance.
In other company news, Sea Forest jumped three per cent to $2.36 after its quarter-on-quarter revenue nearly doubled as demand for its seaweed-based, methane-busting livestock feed gathered pace.
The Australian dollar was buying 71.73 US cents, up from 71.64 US cents on Tuesday at 5pm, little changed by the statistics bureau's inflation surprise.
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