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 February, the Inflation Gauge decreased by 0.1%, taking the annual rate to 2.1%. In January, the comparable figures were 0.3% and 2.0%. While the latest month’s inflation rate was lower than January’s rate, the annual rate rose as the February 2017 index reading had been 0.3% lower than the January 2017 figure. Therefore, the year-on-year rate started from a lower base. (Last month we wrote how this may lead to a jump in the annual rate in the following month.)
