The Melbourne Institute’s Inflation Gauge is an attempt to replicate the ABS consumer price index (CPI) on a monthly basis instead of quarterly. 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 periods of up to six-to-twelve months. On average, the Inflation Gauge’s annual rate tends to overestimate changes in the CPI inflation by an average of about 0.10% in any given quarter.
The Inflation Gauge increased by 0.1% during July after flat results in June and May. On an annual basis, the index is 2.0% higher, the same rate as in June but lower than the 2.1% rate which was recorded in May.
As a leading indicator, one would expect official CPI figures to follow the Melbourne Institute measure. However, “false starts” have occurred before, the most recent in the June and September quarters of 2017. In such cases the Inflation Gauge then fell back to converge with the official figure at the start of 2018.