Years in the making, the first complete monthly inflation report is almost here
- Written by: John Hawkins, Head, Canberra School of Government, University of Canberra
A new “complete” monthly consumer price index (CPI) will be released next week, and will become Australia’s primary measure of inflation.
This new release will finally bring Australia into line with the other advanced economies in the Group of 20, which all publish inflation data every month. It will make it easier to compare inflation trends with other nations.
For the Reserve Bank of Australia, headline inflation from the complete monthly CPI will become the new target for monetary policy.
The Australian Bureau of Statistics has been publishing a monthly CPI “indicator” since 2022. But it only had a partial coverage.
The inflation report measures price changes in a fixed “basket” of goods and services each month.
In an updated explanation of the new data published on Tuesday, the bureau said prices of 87% of the CPI basket of goods and services will be updated each month. That’s up from 50% previously.
A quarterly series (an average of the three months) will continue to be published.
What does the new monthly measure mean for our understanding of inflation?
The monthly series will be more volatile
A monthly consumer price index can swing a lot reflecting temporary fluctuations in the volatile prices of goods such as petrol, fruit and vegetables. These get smoothed out somewhat – but not totally removed – in a quarterly index.
The inflation rate based on the new monthly series will therefore be more volatile than that based on the quarterly. We will need to build up some history before we know just how much more volatile. But the experience with the partial monthly measure (and experience in other countries) provides a guide.
The Reserve Bank has commented it “will take time to learn about the properties of the monthly CPI data”.
The Reserve Bank will “initially continue to focus on measures of underlying inflation from the quarterly CPI”. It will forecast the quarterly rather than the monthly CPI.
The monthly index will sometimes give earlier warning of a changing trend in inflation. For example, in mid-2025 the jump from 1.9% in June to 3.0% in August was a warning that inflation was no longer falling.
But it can also give misleading signals. In late 2022, the monthly index showed inflation jumping from 7.4% to 8.4%. But the quarterly index revealed inflation had peaked at 7.8% in the December quarter.
In mid-2023, the monthly index showed inflation picking up from 4.9% in July to 5.6% in September; yet the quarterly index showed inflation was continuing to decline.
In mid-2025 the monthly index showed inflation was down to 1.9%, below the Reserve Bank’s 2-3% target band, leading some commentators to expect a run of further interest rate cuts. But we now know (underlying) inflation has been staying stubbornly near the top of the Reserve Bank’s band.
The Melbourne Institute has produced a monthly Australian inflation gauge since 2002. But it isn’t much quoted, perhaps because of the volatility.
Too much information?
Encouraging the media and the public to pay more attention to the monthly index might create the impression there’s more inflation than there is.
Behavioural economics says people are “loss averse”. They pay more attention to bad news (high inflation) than good news (low inflation). The monthly figures mean the media will be reporting inflation news 12 times a year, rather than four.
Media reporting each month might amplify things. When the monthly number is low, this may get less attention. Some commentators might even succumb to the temptation to “annualise” a month’s movement, multiplying by 12. This can present a misleading, or alarming, picture.
Over the longer term, the more volatile annual inflation rate based on the monthly data may be within the 2-3% target band less often than the rate calculated from the quarterly data.
The Reserve Bank’s task of restraining inflationary expectations may therefore become harder with the focus shifting to the new monthly measure.
Authors: John Hawkins, Head, Canberra School of Government, University of Canberra
Daily Bulletin
