Expert Forecaster Inflation Forecasts

The inflation rate is a fundamental determinant of the discount rate used to calculate the present value of an asset. Changes in inflation therefore affect asset valuations. Do experts, as polled in the quarterly Survey of Professional Forecasters, offer accurate U.S. inflation forecasts that thereby indicate asset valuation changes? Survey report release dates are mid-quarter. For example, the release date of the first quarter 2024 report is February 9, 2024, forecasting inflation for the next 12 months. Forecasts are either GDP-based or CPI-based. To test their accuracies, we relate these forecasts to actual CPI-based inflation rates 12 months later based on mid-quarter releases. Using quarterly forecast data since the second quarter of 1970 for GDP-based forecasts and the third quarter of 1981 for CPI-based forecasts and associated actual inflation rates, all through mid-February 2024, we find that: (more…)