Forecasting Inflation

Our primary Inflation forecaster is our proprietary “Moore Inflation Predictor” (MIP)… as a matter of fact it is the reason we began publishing the Financial Trend Forecaster as a paper newsletter. Prior to that James Moore published an economics based newsletter called “Your Window into the Future” and that is where he developed the “Moore Inflation Predictor.” We took over publication of the MIP when he passed away back in 1995. So how accurate are MIP forecasts?

Real Inflation compared to the MIP’s Inflation Forecast

Below you can see the MIP chart we published in April 2010 (with March inflation data). I’ve added the actual numbers (in Blue) since then and you can see that inflation has consistently fallen on the low side… almost exactly tracking the forecast “Likely Low” or “Extreme Low” line.

But you have to remember at the time this forecast was created everyone was convinced that the Trillion dollar stimulus would cause hyperinflation. But my article Velocity of Money and Money Multiplier – Why Deflation is Possible showed another possibility for negative economic growth.

Some previous Inflation Forecasts:

In December of 2006 in the wake of hurricane Katrina and massive increases in the price of oil many prognosticators were forecasting massive increases in inflation.

Our Moore Inflation Predictor© on the other hand was predicting relatively level inflation with a significant drop a year into the future. Most of the others thought we were absolutely nuts. In hindsight we were amazingly accurate in a very difficult economic environment. One key to note is that the MIP does extremely well forecasting the direction of inflation… see how closely the shape of the actual is reflected in the projection. Another interesting thing to note is that by the March 2006 MIP projection (not shown) the projections for November 2006 were much closer than these so the MIP was still giving notice 8 months in advance.

Interestingly the 8 month time frame is one of the MIP’s most accurately forecast periods.

Below you will see two other inflation forecasts by the MIP with the actual result added in.

The next MIP chart is one we created in March of 2004 and the last one is from October of 2004 with the reality line added showing what actually happened compared to what we projected.

As you can see our Moore Inflation Predictor’s long term forecast ended up very close to reality although Oil shocks skewed the interim April  and May 2005 numbers a bit.

See our 2011 Inflation Forecast

Tim McMahon, Editor
Financial Trend Forecaster
“The Place in Cyberspace for Inflation Forecasts”
www.fintrend.com
www.InflationData.com
www.YourFamilyFinances.com