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 series and the CPI have diverged, only for the two series to eventually converge over the space of six to twelve months.
During May, the Inflation Gauge recorded no inflation, although it did still rise from 2.6% to 2.8% on an annualised basis. Core measures of inflation, such as the Melbourne Institute’s version of “trimmed mean”, moved up from 1.7% (year on year) to 2.1%, which places it above the lower boundary of the RBA’s target range.
The sizeable gap which existed in February closed after March quarter CPI figures moved higher. A new gap has since opened up in April and it has widened further in May. These latest Inflation Gauge figures suggest inflation, as measured by consumer prices, is likely to rise, especially since core inflation measures have also pushed above 2.0%.
The figures had little effect on local markets and bond yields finished the day generally lower. 3 year yields were steady at 1.70% while 10 year yields slipped 2bps from 2.44% to 2.42%. The local currency rose nearly 0.5 U.S cents to around 74.75 US cents.