Summary: Melbourne Institute Inflation Gauge index up 0.2% in June; up 3.2% on annual basis; ACGB yields rise; rate-rise expectations firm slightly; implies 0.5% for June quarter CPI.
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%, or at least until recently.
The Melbourne Institute’s latest reading of its Inflation Gauge index indicates consumer prices increased by 0.2% in June, down from the 0.3% increase posted in May but up from the 0.1% rise in April. Inflation on an annual basis was measured at 3.2%, slightly faster than May’s comparable figure of 3.1%.
The update was released on the same day as ANZ’s latest Job Ads report and Commonwealth Government bond yields moved higher across the curve, lagging the rises of long-term US yields on Friday night. By the close of business, the 3-year ACGB yield had added 5bps to 4.10%, the 10-year yield had gained 7bps to 4.39% while the 20-year yield finished 9bps higher at 4.70%.
Expectations regarding rate rises in the next twelve months firmed slightly by the end of the day. In the cash futures market, contracts implied the cash rate has some chance of rising above the current rate of 4.32% in the short-term, with an average of 4.325% through July, 4.395% in August and 4.47% in November. February 2025 contracts implied 4.44% while May 2025 contracts implied 4.345%, just above the current cash rate.
Given the Inflation Gauge’s tendency to overestimate, the latest figures imply an official CPI reading of 0.5% (seasonally adjusted) for the June quarter or 3.1% in annual terms. However, it is worth noting the annual CPI rate to the end of March 2023 was 7.0% while the Inflation Gauge had implied a 5.7% annual rate at the time.