Summary: Melbourne Institute Inflation Gauge index up 0.8% in March; up 4.0% on annual basis; “consistent with an acceleration in underlying inflation”; bond yields barely change on day; cash futures imply no rate rise until after May.
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 0.8% in March. The rise follows a 0.5% increase in February and a 0.4% increase in January. On an annual basis, the index rose by 4.0%, up from February’s 3.5%.
“While the monthly MI series does not map neatly on the official quarterly CPI data, it is consistent with an acceleration in underlying inflation and further reinforces the risks to the RBA’s February inflation forecasts are firmly to the upside,” said NAB senior economist Tapas Strickland.
The figures were released at roughly the same time as ANZ’s latest Job Ads report but both reports had little impact and Commonwealth Government bond yields hardly moved. By the close of business, 3-year and 10-year ACGB yields were both unchanged at 2.60% and 2.89% respectively while the 20-year yield finished 1bp lower at 3.19%.
In the cash futures market, expectations of any material change in the actual cash rate, currently at 0.06%, softened a touch. At the end of the day, contract prices implied the cash rate would not exceed the RBA’s 0.10% target rate until May and then rise to 0.75% by August. February 2023 contracts implied a cash rate of 1.945%.
Given the Inflation Gauge’s tendency to overestimate, the latest figures imply an official CPI reading of 0.8% (seasonally adjusted) for the March quarter and 3.9% in annual terms. However, it is worth noting the annual CPI rate to the end of December was 3.7% while the Inflation Gauge had implied a 2.8% annual rate at the time.