Inflation gauge slips again, rate cuts to come soon

03 June 2019

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 during May after a 0.2% increase in April and a 0.4% increase in March. On an annual basis, the index increased by 1.7%, down from April’s comparable rate of 1.8%. To date, this implies the headline CPI rate is around 1.6%. For the purpose of comparison, the annual CPI rate to the end of March was 1.3%.