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Economic SYNOPSES
short essays and reports on the economic issues of the day
2009 ■ Number 1

Is There Less Agreement About Inflation?
Daniel L. Thornton, Vice President and Economic Adviser
he Blue Chip forecasts for inflation come from a
increased about midyear. Interestingly, the range of forecasts
panel of forecasters who, each month, predict
for November 2008 is much larger than in any November
inflation for the current year and 1 year ahead.
during the prior 15 years. This marked increase for 2009
The size of the panel and its membership change over time;
inflation reflects the significant markdown made by many
however, since 1993 the panel has never been smaller than
33 or larger than 54 members. The range of these forecasts—
“Agreement about current-year
the highest forecast minus the lowest—is a measure of the
level of agreement among panel members about future
CPI inflation for 2008 began to
inflation. It is not a good measure of inflation uncertainty,
deteriorate about midyear.”
though. In fact, greater inflation uncertainty could cause
members’ forecasts to converge, thereby making the range
smaller, not larger.1
forecasters. For the 44 forecasters who participated in both
Charts A and B show the ranges of the panel’s monthly
the October and November panels, the average reduction
CPI inflation forecasts for the past 15 years (1993-2007):
for inflation is 1 percentage point. Moreover, several memThe lighter shading shows the area between
the largest and smallest forecast ranges over
the entire sample for that particular month
A. Ranges of Forecasts for Current-Year CPI Inflation
of the year. (For example, the smallest range
6
Range
in January, 1.3 percentage points, occurred
Trimmed Range
5
in both 1998 and 2000, and the largest range,
2008
3.7 percentage points, occurred in 1997.)
4
The darker shading shows the area after the
3
two largest and two smallest ranges have
been deleted, which removes the effect of
2
extreme observations. The darker area in
1
chart A slopes down because, in each succes0
sive month, members have more informaJan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
tion with which to forecast the current year’s
inflation.
B. Ranges of Forecasts for 1-Year-Ahead CPI Inflation
The dashed line shows the monthly ranges
for 2008. Agreement about current-year
6
CPI inflation for 2008 began to deteriorate
5
about midyear. Indeed, the July, August, and
4
September ranges were higher than in any
comparable months in the previous 15 years;
3
and the November range is at the maximum
2
for the entire period.
The 2008 ranges for the 1-year-ahead fore1
casts are also high, relative to the past 15 years.
0
As with the current-year forecasts, disagreeJan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
ment about 2009 inflation appears to have

T

Economic SYNOPSES

Federal Reserve Bank of St. Louis

bers are now forecasting deflation and a few anticipate significant deflation in 2009. ■
1

See D’Amico, Stefania and Orphanides, Athanasios. “Uncertainty and Disagreement in Economic Forecasting.” Finance and Economic Discussion Series, No.
2008-56, 2008; www.federalreserve.gov/pubs/feds/2008/200856/200856pap.pdf.

Posted on January 5, 2009
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

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