The Melbourne Institute’s Inflation Gauge is an attempt to replicate the ABS consumer price index (CPI) on a monthly basis instead of a quarterly one. It has turned out to be a reliable leading indicator of the CPI, although there are periods in which the Inflation Gauge series has diverged, only to return back to the official CPI series.
The Inflation Gauge fell during February for the first time since July 2016. This latest reading indicates consumer prices fell by 0.3% for the month even though the annual rate remained at 2.1%. January’s comparable figure was 0.6%.
Some bond yields were marginally higher on the day while the AUD was slightly weaker against the USD. In any case, retail sales figures and ANZ job advertisement reports were released on the same day, so it is problematic to say how each report was received. The yield on 3 year bonds was 1bp higher at 2.05% while the yield on 10 year bonds was steady at 2.795%.
A sizeable gap has existed between the two series for some time now. After the release of the January figures, YieldReport remarked on how unusual it is for such a gap to exist for long, as the average difference between the two series in any month is only 0.06%. Either the official CPI figures will rise or the Inflation Gauge will fall but readers can see the Inflation Gauge (blue line) has tended to lead the official CPI (green line) in the past.