Forecasting Inflation with Online Prices

Abstract

Are survey-based forecasts unbeatable? They are not. This paper introduces online price indices to forecast the Consumer Price Index. We find that online price indices anticipate changes in official inflation trends more than one month in advance. Our baseline one-month and two-month-ahead forecasts substantially outperform Bloomberg surveys of forecasters, which only predict the contemporaneous inflation rate. Our baseline specification also outperforms statistical benchmark forecasts for Australia, Canada, France, Germany, Greece, Ireland, Italy, the Netherlands, the United Kingdom, and the United States. Similarly, our quarterly forecast for the US inflation rate consistently outperforms the Survey of Professional Forecasters.

Keywords: Forecasting, Inflation, Survey of Professional Forecasts, Online Prices.

JEL Classification: C53, E31, E37