This is an updated version of a post from early December.
Australia’s Q4 CPI will be released on 28 January and the quarterly report will remain the key focus for the RBA for the time being while they “begin to consider underlying inflation measures constructed using the monthly CPI” (see here).
Before then the monthly CPI for November will be published on 7 January. This is a key release for cash rate watchers as it will allow Q4 trimmed mean inflation nowcasts to be honed.
The ABS have said that the Bank’s preferred quarterly trimmed mean inflation metric will continue to be compiled under the pre-October methodology, including collection frequency and seasonal adjustment of CPI expenditure components (ECs).
Importantly, for those ECs (or individual subcomponents) previously measured in only one month per quarter, the prior approach will continue to be used to estimate quarterly trimmed mean inflation. For those ECs measured every month a quarterly average will still be used.
For example, furniture prices were previously only measured in January, April, July and October but are now measured every month in the monthly CPI. For the purposes of calculating quarterly trimmed mean inflation the ABS will use growth in furniture prices over the 3 months to the first month of each quarter. For Q4, this will be growth between July and October (which we already have).
But our analysis of the detail from the new monthly CPI versus the previous monthly CPI indicator has highlighted some differences which we need to be mindful of when nowcasting quarterly inflation under the ‘old’ methodology.
