Forecasting Inflation at the NBR

NBR adjusted one more time the inflation forecast for 2011 and 2012. For both periods the NBR revised the forecast downwards. As I said after the last report, forecasting inflation is not the strongest point for this particular Inflation Targeting Central Bank.

Below is the same table as in August, updated with the new forecasts from the November Inflation Report. This is how to read it. For example, in 2007 there were 4 Inflation reports. Each had a forecast for end of 2007 and for end of 2008. As you can see throughout the year NBR revised the inflation for 2007 downwards until November when it revised it upwards. In the end the actual inflation was close to the original forecast but 1% lower than the last forecast done only two months before the end of the year.

There were few conclusions when I last visited this issue in August but one is very important now: at very short periods NBR does a very poor job forecasting inflation. There is no bias but every time since 2007 the November forecast for the end of the year was different by the actual inflation by at least 1%.  So, will this happen again this year? The odds are definitely favoring an inflation at the end of the year of either 4.3% or 2.3%.

Dec-07 Dec-08
2007 Feb 4.7 4.1
May 3.7 4.2
Aug 3.9 3.7
Nov 5.7 4.3
Actual-07 4.84 Dec-08 Dec-09
2008 Feb 5.9 3.9
May 6 3.5
Aug 6.6 4.2
Nov 6.7 4.5
Actual-08 7.85 Dec-09 Dec-10
2009 Feb 4.5 3.2
May 4.4 2.8
Aug 4.3 2.6
Nov 4.5 2.6
Actual-09 5.59 Dec-10 Dec-11
 2010 Feb 3.5 2.7
May 3.7 2.8
Aug 7.8 3.1
Nov 8.2 3.4
Actual-10 6.09 Dec-11 Dec-12
2011 Feb 3.6 3.2
May 5.1 3.6
Aug 4.6 3.5
Nov 3.3 3.0

2 thoughts on “Forecasting Inflation at the NBR

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