Summary: Melbourne Institute Inflation Gauge index up 0.3% in June; up 4.7% on annual basis; “consistent with elevated inflation”; implies official CPI reading of 0.4% in June quarter.
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 prices increased by 0.3% in June. The rise follows a 1.1% jump in May and a 0.1% decline in April. On an annual basis, the index rose by 4.7%, down from 4.8% in May.
“The Melbourne Institute data overall remains consistent with elevated inflation and aligns with our expectation for another very strong CPI print in Q2, where published trimmed mean inflation is likely to be similar or stronger than the 1.4% seen in Q1,” said NAB economist Taylor Nugent.
The figures were released on the same day as several other domestic data reports and Commonwealth Government bond yields fell modestly. By the close of business, the 3-year ACGB yield had shed 4bps to 3.16%, the 10-year yield had lost 3bps to 3.62% while the 20-year yield finished 2bps lower at 3.84%.
In the cash futures market, expectations of higher rates eased a little. At the end of the day, contracts implied the cash rate would rise from the current rate of 0.81% to 1.185% in July and then increase to 1.655% by August. November contracts implied a 2.74% cash rate and May 2023 contracts implied 3.54%.
Given the Inflation Gauge’s tendency to overestimate, the latest figures imply an official CPI reading of 0.4% (seasonally adjusted) for the June quarter or 4.6% in annual terms. However, it is worth noting the annual CPI rate to the end of March was 5.2% while the Inflation Gauge had implied a 3.9% annual rate at the time.