TD-MI Inflation Gauge Suggests Pressure Building

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By Rudi Filapek-Vandyck

TD Securities and the Melbourne Institute report their Monthly Inflation Gauge rose by 0.4% in April, following a 0.5 % rise in March and a 0.1% rise in February. In the twelve months to April, the Inflation Gauge has now risen by 2.9%.

Contributing most to the overall change in April were (seasonal) price rises for health services, as well as a pickup in fruit and vegetable prices, and the price of rent. There were falls in the price of automotive fuel, meat and seafood, and audio, visual and computing equipment.

The trimmed mean of the Inflation Gauge rose by 0.2% in April, following a rise of 0.5% in March. In the twelve months to April, the trimmed mean has now risen by 2.8%.

Annette Beacher, Senior Strategist at TD Securities, talks about a “ worrying development” given both inflation measures are now close to the upper end of the RBA's official inflation target of 2-3%.

TD Securities remains of the view that the RBA’s projections for underlying inflation to decelerate to 2.5% by mid-year are likely to prove too optimistic, with the Australian economy expected to be bumping against speed limits sooner rather than later.

It is for this reason the RBA is expected to raise by 25bp at its board meeting tomorrow, though Beacher concedes it remains a close call.

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