Summary: Melbourne Institute Inflation Gauge index up 0.2% in December; index up 2.8% on annual basis; bond yields rise; implies 0.5% rise for official December quarter figure.
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 rate by around 0.1%.
The Melbourne Institute’s latest reading of its Inflation Gauge index indicates consumer inflation increased by 0.2% in December. The rise follows a 0.3% increase in November and a 0.2% increase in October. On an annual basis, the index rose by 2.8%, down from November’s 3.1%.
Commonwealth Government bond yields rose on the day. By the close of business, the 3-year ACGB yield had added 2bps to 1.29% while 10-year and 20-year yields each finished 6bps higher at 1.95% and 2.48% respectively.
Given the Inflation Gauge’s tendency to overestimate, the latest figures imply an official CPI reading of 0.5% (seasonally adjusted) for the December quarter or 2.7% in annual terms. However, it is worth noting the annual CPI rate to the end of June was 3.7% while the Inflation Gauge had implied a 3.0% annual rate at the time.