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 and, for some years now, it has been below the RBA’s target band. Despite the RBA’s desire for a higher rate, its attempts to drive up the rate through record-low interest rates have failed to move Australia’s inflation rate to its target band. The latest unofficial measurement of the inflation rate has given no indication the RBA will meet its objective any time soon.
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 changes in CPI inflation by an average of about 0.1% per quarter.
The Inflation Gauge index remained unchanged in June after a flat result in May and a 0.2% increase in April. On an annual basis, the index increased by 1.6%, slowing from May’s comparable rate of 1.7%. Given the Inflation Gauge’s tendency to overestimate, the latest figures imply an official CPI reading of 0.6% (seasonally adjusted) for the June quarter or 1.6% in annual terms. However, it is worth noting the annual CPI rate to the end of March was 1.3% while the inflation Gauge had implied a 2.0% annual rate at the time.