Summary: Melbourne Institute inflation index inches up in September; annual rate steady; implies CPI jump in September quarter.
Despite the RBA’s desire for a higher inflation rate, ostensibly to combat recessions, attempts to accelerate inflation through record-low interest rates have failed to date. The RBA’s stated objective is to achieve an inflation rate of between 2% and 3%, “on average, over time.” Since the GFC, Australia’s inflation rate has been trending lower and lower; then the “coronavirus recession” crushed it in the June quarter.
The Melbourne Institute’s latest Inflation Gauge index inched up by 0.1% through September. The increase follows a 0.1% rise in August and a 0.9% jump in July. On an annual basis, the index increased by 1.3%, the same rate as in August and July.
Commonwealth bond yields moved higher, to some degree following US Treasury yields in overnight trading. By the end of the day, the 3-year ACGB yield had crept up 1bp to 0.22%, the 10-year yield had increased by 5bps to 0.88% while the 20-year yield finished 1bp higher at 1.42%.
The Melbourne Institute’s Inflation Gauge is an attempt to replicate the ABS consumer price index (CPI) on a monthly basis. It has turned out to be a reliable leading indicator of the CPI, although there are periods in which the Inflation Gauge and the CPI have diverged for as long as twelve months. On average, the Inflation Gauge’s annual rate tends to overestimate the ABS headline rate by an average of a little under 0.1%.