MNI INTERVIEW: Aussie Monthly CPI To Remain Despite Gaps - ABS
MNI (MELBOURNE) - The Australian Bureau of Statistics has no plans to improve its newer monthly CPI indicator ahead of a more comprehensive measure due to be introduced in a late-2025 despite often volatile and inconsistent prints when compared to benchmark quarterly readings, a leading ABS official told MNI, advising market participants to focus on accompanying monthly annual trimmed mean and other exclusion-based results to help gauge quarterly inflation.
The gap between the monthly indicator and the quarterly print is driven by the use of carried-over price data from past months and the slightly different timeframes measured, according to Leigh Merrington, head of prices statistics at the ABS. "[The indicator] doesn't measure everything every month, so we have to apply a form of imputation where we carry forward prices from an earlier period to future months until we have that every third-month measurement we do for the quarterly CPI,” Merrington said.
May's monthly indicator, which landed at 4% y/y, drove the market to price in a 25 basis point hike to the Reserve Bank of Australia’s 4.35% cash rate at the Aug 5-6 meeting, before the release of Q2's 3.8% y/y result, which rolled back expectations. The difference has varied greatly from month to month since the indicator launched.
Despite the gaps, Merrington stressed both metrics were based on the same information, although noting that how the data feeds through to monthly and quarterly results were slightly different. The ABS also produces an annual trimmed mean and other exclusion-based measures each month, which financial market participants should focus on alongside the monthly indicator to understand where quarterly CPI may print, he stressed.
The current indicator was designed as a stop gap while the ABS developed a comprehensive monthly CPI, scheduled to launch at the end of 2025. While the RBA has warned against the use of the monthly indicator due to its volatility, Governor Michele Bullock recently pointed to the need for a full monthly CPI, which the Reserve has pushed for since the 1990s.
THE FULL MONTHLY
Merrington said a full monthly CPI report will eventually replace the quarterly CPI as the headline measure of inflation, including a monthly trimmed mean once a sufficient series of data was available for a consistent seasonal adjustment, adding that the “work is happening now.”
The lack of complete services data each month has also been a major criticism of the monthly indicator since its launch.
Merrington noted that, while there were no plans to develop the indicator further, the ABS has made a number of improvements since 2022, including a monthly measure for rents, electricity, gas and urban transport as well as adding the annual trimmed mean and publishing monthly data for 87 goods and services. “Some services we only measure once a quarter, such as restaurants, hairdressers and insurance,” he added. “That's where we're collecting more data.”
The ABS currently has only a very short services time series on a monthly basis and the bureau was committed to maintaining the quality of its CPI metric when it introduces the new, full measure.
The monthly indicator had shown some items, such as holiday travel, were highly volatile as prices for airfares and accommodation changed due to school holidays and travel over the Christmas period, he said. While that volatility is likely to be a feature of the monthly CPI, the ABS will also produce a seasonally-adjusted series and trimmed mean to help smooth out the result, Merrington continued.