Still, our statements hit the bull's eye when it comes to the dangers of the inflation outlook in the medium-term:
The Federal Reserve Bank of St. Louis today published an analysis according to which inflation may be the next dragon to fight. Researcher Kevin L. Kliesen has deteced forecasting camps in the Blue Chip survey! Here are some extracts:
- A considerable amount of disagreement seems to exist among economists about the inflation outlook over the next few years
- Looking at past five-year forecasts of the average Consumer Price Index (CPI) inflation rate from Blue Chip Economic Indicators, Kliesen noted that when inflation was relatively high and variable, such as the late 1980s and early 1990s, there was sizable disagreement among forecasters. In contrast, during periods when inflation was relatively low and stable, such as the mid-1990s to mid-2000s, forecasters tended to disagree less about the inflation outlook.
- Ultimately, one’s view of the inflation outlook over the next few years depends on one’s view of how to best forecast inflation over that horizon,” Kliesen said, noting that economists use several different forecasting methods. These methods include tracking the growth rate of the money supply relative to the growth rate of real GDP; viewing the inflation process as a random walk; or using some variant of the Phillips Curve (or what is now often called the New Keynesian model.) According to an August 2009 survey by the Federal Reserve Bank of Philadelphia, nearly two-thirds of professional forecasters use a variant of the Phillips Curve to forecast inflation
- Uncertainty remains over how the Fed will rein in the potential acceleration in money growth as the economy improves