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 December, the Inflation Gauge increased by 0.1%, taking the annual rate to 2.3%. In November, the comparable figures were 0.2% and 2.7%.
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. The Inflation Gauge’s annual rate also tends to overestimate changes in the CPI inflation by about 0.08%.
In conjunction with figures from October and November, the latest figures imply an official CPI reading near 0.50% (seasonally adjusted) for the December quarter. In annual terms this implies a CPI figure of 2.0%, or 0.2% higher than September’s comparable figure.
Markets reacted cautiously to the figures and bond yields were only a little higher by the end of the day. Yields on 3 year bonds gained 2bps to 2.19% while the 10 year yield inched up 1bp to 2.77%. The local currency added about 0.5 U.S. cents on the day, although the gain was more the result of USD weakness than of local data.