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.
During August, the Inflation Gauge increased by 0.10%, which translates to 2.60% higher than a year ago. Core measures of inflation, such as the Melbourne Institute’s version of the ABS “trimmed mean” measure, increased by 0.10% for the month or 2.50% on an annualised basis.
As a leading indicator, one would expect official CPI figures to follow the Melbourne Institute measure. Readers will note from the chart above how the Inflation Gauge has reversed direction in the past and one should not read too much into one month’s numbers.
Goldman Sachs chief economist Andrew Boak thought this latest reading was confirmation of higher official CPI figures to come. “The release confirms the recent pick-up in annual inflation rates and we continue to expect CPI inflation to pick up in third quarter of 2017, in part due to higher utilities prices.”