Summary: Melbourne Institute Inflation Gauge index up 0.1% in September; up 5.7% on annual basis; ACGB yields barely move; rate-rise expectations unchanged.
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%, at least until recently.
The Melbourne Institute’s latest reading of its Inflation Gauge index indicates consumer prices increased by just 0.1% in September, following increases of 0.2% and 0.8% in August and July respectively. The index rose by 5.7% on an annual basis, down from August’s comparable figure of 6.1%.
Commonwealth Government bond yields barely moved on the day, largely in line with the overnight movements of US Treasury yields. By the close of business, the 3-year ACGB yield had returned to its starting point at 4.09% the 10-year yield had added 1bp to 4.51% while the 20-year yield finished steady at 4.82%.
In the cash futures market, expectations regarding further rate rises remained unchanged. At the end of the day, contracts implied the cash rate would change little from the current rate of 4.07% in the short term and average 4.09% through October, 4.165% in November and 4.22% in December. February 2024 contracts implied a 4.295% average cash rate while May 2024 contracts implied 4.34%, 27bps more than the current rate.
Given the Inflation Gauge’s tendency to overestimate, the latest figures imply an official CPI reading of 0.8% (seasonally adjusted) for the September quarter or 5.0% in annual terms. However, it is worth noting the annual CPI rate to the end of March was 7.0% while the Inflation Gauge had implied a 5.7% annual rate at the time.