September quarter inflation rate likely to be unchanged

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02 October 2017

The Melbourne Institute’s Inflation Gauge is an attempt to replicate the ABS consumer price index (CPI) on a monthly basis instead of quarterly. It has turned out to be a reliable leading indicator of the CPI, although there are periods in which the Inflation Gauge series and the CPI have diverged, only for the two series to eventually converge over the space of six to twelve months.

During September, the Inflation Gauge increased by 0.30%, which translates to 2.50% higher than a year ago. Core measures of inflation, such as the Melbourne Institute’s version of the ABS “trimmed mean” measure, also increased by 0.10% for the month or 2.50% on an annualised basis.

As a leading indicator, one would expect official CPI figures to follow the Melbourne Institute measure. Readers will note from the chart above how the Inflation Gauge has reversed direction in the past and one should not read too much into one month’s numbers. The Inflation Gauge’s annual rate also tends to overestimate changes in the CPI inflation by about 0.08%.

In conjunction with figures from July and August, these latest figures imply an official CPI reading near 0.40% (seasonally adjusted) for the September quarter. In annual terms this implies a CPI figure of around 1.90%, which is in line with June’s comparable figure.

On the day, both 3 year and 10 year bond yields each gained 3bps to 2.21% and 2.90% respectively. The local currency was a little lower against the USD and it finished at around 79.25 U.S. cents.