Predicting Inflation: Professional Experts Versus No-Change Forecasts

Abstract

We compare forecasts of United States inflation from the Survey of Professional Forecasters (SPF) to predictions made by simple statistical techniques. In nowcasting, economic expertise is persuasive. When projecting beyond the current quarter, novel yet simplistic probabilistic no-change forecasts are equally competitive. We further interpret surveys as ensembles of forecasts, and show that they can be used similarly to the ways in which ensemble prediction systems have transformed weather forecasting. Then we borrow another idea from weather forecasting, in that we apply statistical techniques to postprocess the SPF forecast, based on experience from the recent past. The foregoing conclusions remain unchanged after survey postprocessing.