Forecast errors from end of last year are essentially zero.
Figure 1: CPI inflation year-on-year (black), median expected from Survey of Professional Forecasters (blue +), median expected from Michigan Survey of Consumers (red), median from NY Fed Survey of Consumer Expectations (light green), forecast from Cleveland Fed (pink), all in %. NBER defined peak-to-trough recession dates shaded gray. Source: BLS, University of Michigan via FRED and, Philadelphia Fed Survey of Professional Forecasters, NY Fed, Cleveland Fed and NBER.
Who was over-estimating inflation a year ago?
Figure 2: Forecast errors from Survey of Professional Forecasters (blue +), from Michigan Survey of Consumers (red), NY Fed Survey of Consumer Expectations (light green), Cleveland Fed (pink), all in %. NBER defined peak-to-trough recession dates shaded gray. Source: BLS, University of Michigan via FRED and Investing.com, Philadelphia Fed Survey of Professional Forecasters, NY Fed, Cleveland Fed , NBER and author’s calculations.
While the SPF and Cleveland Fed measures underpredicted inflation through 2021-22, they are about on track as of November/December. In contrast, the household measures overpredicted inflation.
Inflation expectations have been accurate lately. Butthat doesn’t fit the story we are told by a persistent member of the troll choir. Will we now be lectured by that persistent member of the troll choir about how inflation expectations are bad, bad, bad because a particularly serious economic shock made predictions difficult? And how those bad, bad, bad expectations mean that forward-looking assessments are bad, bad, bad?
Maybe. But if that persistent member of the troll choir doesn’t repeat his view now, he probably will later, when the evidence that he’s saying silly stuff isn’t close at hand.
Keynes famously said “When my information changes, I alter my conclusions. What do you do, sir?” The answer from the Putin-hugging member of the troll choir is “I ignore the information and repeat my conclusion over and over and over.”
Other than my personal pet peeve on Larry Summers (am I vindictive or grudge type?? “IBM presents YOU make the call” [insert boisterous trumpet jingle here] I don’t worry about the inflation trolls. I worry about unnecessary deaths in Ukraine, because Republican bastards in America refuse to give them munitions, as the death count rises and now those Ukrainian men conscripted to be soldiers, who at the start of the war “heard the call” of their nation, now run into hiding for fear of being literal cannon fodder.