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. Generally, the Inflation Gauge’s annual rate tends to overestimate changes in the CPI inflation by about 0.08%.
During January, the Inflation Gauge increased by 0.3%, taking the annual rate to 2.0%. In December, the comparable figures were 0.1% and 2.3%. While the latest month’s inflation rate was higher than December’s rate, the annual rate fell as the January 2017 index reading had been 0.6% higher than the December 2016 figure. Therefore, the year-on-year rate started from a higher base. Perversely, this effect may lead to a jump in the annual rate next month as the base month moves to February 2017.