Inflation Expectations

The Melbourne Institute Survey of Consumer Inflationary and Wage Expectations is a monthly report from the Melbourne Institute at the University of Melbourne. It asks Australian householders whether, and by how much, goods prices will change over the next 12 months. Its headline is the average expected price change for the year ahead, with added detail on past wage growth and year-ahead pay expectations. It is not the Consumer Price Index, an economist forecast, or the Monthly Inflation Gauge, which tracks actual inflation trends.

Releases are embargoed until 11:00 am Melbourne/Sydney time on a Thursday in the middle of the reference month. The time is AEST in winter months and AEDT in summer months, on the second to fourth Thursday of the month. Each release includes wage data for pay growth over the past 12 months and expected growth plus distribution detail, and announces the next release timing. There is no revision policy, and prior figures stay unchanged apart from the May 2014 method change.

Five components shape the release, and they can point in different directions.

• Headline expected inflation rate, 30% trimmed mean: the average household expectation for price change over the next 12 months, after trimming extremes.
• Share in 0-5% range: the weighted share of valid replies, excluding don't knows, expecting inflation between 0% and 5%.
• Mean in 0-5% range: the weighted average of those 0% to 5% replies, often near 2% to 3%.
• Response distribution: how answers spread across values, such as shifts toward 2% and 3% and away from 5%.
• Wage block: actual pay growth over the past 12 months, the share reporting a rise or fall, and expected pay growth.

In the May 21, 2015 release, the headline rose by 0.2 percentage points to 3.6% from 3.4% in April. But the share expecting 0% to 5% fell by 2.2 percentage points to 71.5% from 73.7%, and the in-range mean fell to 2.4% from 2.6%. The release linked both falls to a smaller cluster of replies at 5%. The in-range mean had held near 2.5% for 12 months, so the headline can rise while the core softens.

1. Ask: Ask householders whether, and by how much, goods prices will change over the next 12 months.
2. Exclude: Drop all don't know replies and keep only numeric answers with their survey weights.
3. Order: Sort valid answers from lowest to highest, carrying each reply's weight.
4. Trim: Remove the bottom 15% and the top 15% of the weighted replies to cut extremes.
5. Average: Take the weighted average of the middle 70% as the headline rate. As illustration with equal weights, not real data: 22 replies include 2 don't knows, leaving 20 valid values. Dropping the lowest 3 and the highest 3 values, 6 in all, the middle 14 average 3.9%, against 5.3% untrimmed.
6. Revision: In May 2014 the method was revised to fix a downward bias, widen coverage and resist shifts in replies. April 2014 was restated to 4.2% from 2.4%.