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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics, and more. I'm Michael Thompson

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Speaker 1: and hello Sean Aylmer.

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Speaker 2: Hello Michael.

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Speaker 1: Sean. Today's question is a topical one. The question is thus,

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Speaker 1: it's very formal introduction.

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Speaker 2: Formal introduction, Yes, go on.

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Speaker 1: What is the difference between monthly and quarterly CPI?

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Speaker 2: Well, Michael, one comes out every quarter and one comes

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Speaker 2: out every month.

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Speaker 1: All right, I'll just see myself out then, shall I. Well,

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Speaker 1: I mean, I'm assuming there is probably more to it,

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Speaker 1: right than just the frequency. Do they look at the

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Speaker 1: same things? Is it a broader kind of overview? You

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Speaker 1: know what, Sean, I'd be happy just with the answer

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Speaker 1: you gave, but I suspect listeners may want a little

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Speaker 1: bit more if they're going to spend the next couple

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Speaker 1: of minutes listening to you.

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Speaker 2: The monthly data is relatively new. The Bureau has only

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Speaker 2: been doing it for a little while. It's hard to take.

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Speaker 2: You can read into the trend on the monthly data,

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Speaker 2: but it'll take a couple of years for that sort

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Speaker 2: of to settle into a pattern effectively. I think the

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Speaker 2: number is about forty three percent of the stuff in

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Speaker 2: the forty three percent of the quarterly stuff is in

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Speaker 2: the monthly stuff, so it is much narrower. It also

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Speaker 2: has a much bigger focus. The monthly has much bigger

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Speaker 2: focus on goods rather than services. And if you think

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Speaker 2: about that, many services, think insurance, education, you pay for

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Speaker 2: those not every month, but maybe once a year, maybe

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Speaker 2: every quarter. The thing about the quarterly number is that

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Speaker 2: it's more likely to capture some of those service charges.

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Speaker 1: So the so the quarterly one would did you say, yeah.

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Speaker 2: So the quarterly one is far broader than what the

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Speaker 2: monthly one is. Now, having said that, we had one

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Speaker 2: this week, the April CPI figure that actually captured a

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Speaker 2: bunch of insurance costs. So once a year insurance costs

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Speaker 2: go on, not once a year, but there's a big

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Speaker 2: clumps go in to the CPI once or twice a year.

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Speaker 2: That happened to be April. So that monthly figure was

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Speaker 2: three point seven percent. I think that was pretty good.

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Speaker 2: But generally those services don't get captured by the monthly figures,

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Speaker 2: but are more likely to get captured by the quarterly figures.

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Speaker 1: Do services or goods tend to be more volatile? And

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Speaker 1: then based on that, does is there an increased risk

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Speaker 1: that the monthly figures could end up being more volatile

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Speaker 1: if it ends up being that the goods figures.

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Speaker 2: Have the greater risk of volatility A nice work, sounding

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Speaker 2: like an economist, It's it's not so much the volatility,

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Speaker 2: it's the stickiness. So if the dollar drops and it

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Speaker 2: costs US more to buy a TV from overseas, right,

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Speaker 2: that happens pretty quickly. But if the dollar rises, that

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Speaker 2: happens quickly too, So that's volatile. You might say the

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Speaker 2: goods is volatile, okay, but it moves around a lot.

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Speaker 2: If a service, so you know, me paying for a

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Speaker 2: personal trainer, those prices don't change anywhere near as often, right,

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Speaker 2: So service my personal trainer. So here's a twelve month contract.

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Speaker 2: This is what you've got to do. Insurance, you pay

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Speaker 2: that every year, then you get it an increase twelve

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Speaker 2: months time.

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Speaker 1: So I'm just laughing at the idea of not just

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Speaker 1: you having a personal trainer, but you're committing to twelve months.

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Speaker 1: Totally ridiculous. Just a one off train it would be

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Speaker 1: more likely.

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Speaker 2: Yeah, So insurance, then let's use that. I mean, you

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Speaker 2: pay that every year, so it's just that's harder to

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Speaker 2: it's just stickier rather than more volatile. And what we've

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Speaker 2: found when inflation started rising, goods prices rose first, services

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Speaker 2: caught up. Now that inflation is falling, goods inflation is

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Speaker 2: actually really low. You know, it's at the bottom end

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Speaker 2: of the Reserve Banks target band. In fact, it's almost

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Speaker 2: too low. But services inflation is still taking time to

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Speaker 2: get back within that band. So it's less about the volatility,

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Speaker 2: it's more about the stickiness of it.

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Speaker 1: Okay, So in the long term, in a few years time,

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Speaker 1: the monthly figures might actually be really really useful and

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Speaker 1: be able to provide a much more timely reflection yes

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Speaker 1: of inflation.

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Speaker 2: So most big economies OVERCIS have monthly data. The US

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Speaker 2: has great monthly data for inflation. Over time, the series

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Speaker 2: will become more dependable. They also seasonally adjust stuff, the

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Speaker 2: Bureau of Statistics, but it takes time for them to

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Speaker 2: work out, you know, why things go up at certain

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Speaker 2: times of the year and why I drop it certain

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Speaker 2: times of the year. So this is all a process.

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Speaker 2: I think the quarterly CPI will always be broader because

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Speaker 2: it will capture more because more stuff happens in three

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Speaker 2: months than one month. But you will find over time

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Speaker 2: the monthly data will probably be used a lot more

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Speaker 2: when we think about interest rates and that type of thing.

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Speaker 1: Okay, so it's not just the frequency. In conclusion, there

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Speaker 1: is more to it than just the fact that one

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Speaker 1: comes out monthly and one comes out every three months.

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Speaker 2: Yes, there is more to it, Michael.

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Speaker 1: Yeah, thank you. That's the takeaway from this entire conversation.

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Speaker 1: Well answered, John, Thank you very much.

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Speaker 2: Thank you, Michael.

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Speaker 1: humanly possible. I'm Michael Thompson and this ask Fear and

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Speaker 1: Great