Summary: Melbourne Institute Inflation Gauge index up 0.2% in November; up 2.9% on annual basis; short-term ACGB yields rise modestly, longer-terms yields steady; rate-cut expectations soften.
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 November, down from 0.3% in October but up from September’s 0.1%. Inflation on an annual basis slowed from 3.0% to 2.9%.
Short-term Australian Commonwealth Government bond yields rose modestly on the day while longer-term yields finished unchanged, ignoring the noticeable downward movement of US Treasury yields on Friday night. By the close of business, the 3-year ACGB yield had added 2bps to 3.93% while 10-year and 20-year yields both finished steady at 4.35% and 4.68% respectively.
Expectations regarding rate cuts in the next twelve months softened a touch. Cash futures contracts implied an average of 4.335% in December, 4.305% in February and 4.135% in May. November 2025 contracts implied 3.80%, 54bps less than the current cash rate
Central bankers desire a certain level of inflation which is “sufficiently low that it does not materially distort economic decisions in the community” but high enough so it does not constrain “a central bank’s ability to combat recessions.”