TD Inflation Gauge Shows 'Worrying Signs Of Further Price Acceleration'

Getty/Ashley Pon

Inflation was a big surprised back in December.

But since then it has moderated, as shown in this morning’s release of The TD Securities – Melbourne Institute Monthly Inflation Gauge, which rose only 0.2% in February after a 0.1% increase in January.

This puts the index up 2.7% year on year, which is at the high end of the RBA’s 2-3% target band, but entirely in line with what they are currently expecting.

But Annette Beacher, Head of Asia-Pacific Research at TD Securities, is worried about where inflation might be headed:

Using mid-quarter prices now available, our Inflation Gauge measure is showing worrying signs of further price acceleration. Our Inflation Gauge rose by 1.0 per cent in the March quarter, led by a 1.4 per cent leap in tradable inflation, while our trimmed mean measure rose by an equally startling 0.8 per cent between November and February. These quarterly growth outcomes, using official inflation data, imply annual rates of 3.4 per cent and 3.0 per cent for headline CPI and underlying CPI respectively.

While this is also reflected in the recent RBA’s release in February of the Quarterly Statement On Monetary Policy that does seem a little on the high side which along with what Beacher sees as fairly strong growth in 2013 leads her to conclude that she expects that “the RBA to begin withdrawing some extraordinary stimulus by year end, and we target a cash rate of 3.0 per cent by December.”

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