A leading private sector inflation gauge is showing that last quarter’s high inflation reading may not have been a one-off.

The TD Securities – Melbourne Institute Monthly Inflation Gauge rose 0.2 per cent in February, following 0.1 and 0.7 per cent increases in the two months previous.

Over the year to February, the gauge shows consumer prices rose 2.7 per cent, up from the 2.5 per cent annual rate in January.

The TD gauge provides a monthly measure of inflation, unlike the official figures which only come out every three months.

The last official inflation figures from the ABS showed prices rose 2.7 per cent over 2013, with even the less volatile underlying measures above the mid-point of the Reserve Bank’s 2-3 per cent target range.

TD’s head of Asia-Pacific research Annette Beacher says the gauge hints at even steeper price rises in the official CPI numbers, closely watched by the Reserve Bank.

“Using mid-quarter prices now available, our inflation gauge measure is showing worrying signs of further price acceleration,” she noted in the report.

“Our inflation gauge rose by 1 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 per cent for headline CPI and underlying CPI respectively.”

Already, the Reserve Bank last month raised its inflation forecasts and now expects the ABS consumer price index (CPI) to rise above its target range to 3.25 per cent by the June quarter.

Ms Beacher’s forecast for inflation is slightly higher than that, and she also sees cause for economic optimism, and therefore forecasts that interest rates will rise before the end of the year.

“Leading housing indicators are accelerating, consumption remains supportive for growth and the star performer will be the trade sector, all offsetting the peak in mining investment,” she observed.

“As inflation is already above the mid-point of the RBA target band, we expect the RBA to begin withdrawing some extraordinary stimulus by year end, and we target a cash rate of 3 per cent by December.”