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Inflation:
Retrieved January 30, 2007 from:
The Moore Inflation Predictor© (MIP) is a highly accurate graphical representation of the future direction of the inflation rate. It has a 97%+ accuracy rate on direction & turning points. And over 90% of the time the rate falls within the projected “likely” range and 7% of the time it falls within the “possible” range.
By watching the turning points, we can profit from inflation hedges (like Gold, Real Estate and Energy Producers) when the rate is trending up and from Bonds when the rate is trending down. In addition it could be used to judge whether to lock in a mortgage rate or wait a month or two for a better rate.
To see how well the MIP has done in predicting inflation see the December 2005 MIP and others with a reality line added.
CURRENT ANALYSIS
The MIP for last month was projecting higher inflation again for this month and that was exactly what we got.
The monthly inflation rate for November 1.97% while the Annual Inflation Rate in December came in at 2.54%.
The MIP is projecting a long slide from here through mid-year with inflation rates possibly reaching new lows before rates begin rising again. June or July might be a good time to refinance your mortgage because interest rates tend to follow inflation rates.
How the MIP measured up:
It has been a difficult year for most Inflation predictors. Last December in the wake of hurricane Katrina and massive increases in the price of oil many prognosticators were predicting massive increases in inflation.
Our Moore Inflation Predictor© on the other hand was predicting relative 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 environment. One key to note is that the MIP does extremely well predicting the direction 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 MIPs most accurate periods.
Below you will see two other previous charts with the actual result added in.
The next 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 projections ended up fairly close to where we projected over a 6 to 8 month period although Oil shocks skewed the interim numbers a bit.
Tim McMahon, Editor
Financial Trend Forecaster and InflationData.com
“The Place in Cyberspace for Inflation Information”
www.fintrend.com
www.InflationData.com
www.YourFamilyFinances.com
This link is very good.it gives some great information and some past predictions….
Forecasts for the future:
(Inflation forecasts produced by the Phillips curve generally have been more accurate than forecasts based on other macroeconomic variables, including interest rates, money and commodity prices. These forecasts can however be improved upon using a generalized Phillips curve based on measures of real aggregate activity other than unemployment, especially a new index of aggregate activity based on 61 real economic indicators.)
FRBSF ECONOMIC LETTER
2002-29; October 4, 2002
Can the Phillips Curve Help Forecast Inflation?
The Atkeson-Ohanian results
Robustness of the Atkeson-Ohanian results
The 1990s: a puzzle?
Conclusion
References
Download and Print PDF Version (81KB)
During the early 1960s, many economists and policymakers believed that monetary policy could exploit a stable trade-off between the level of inflation and the unemployment rate. One version of the hypothesized trade-off, originally described by A.W. Phillips (1958) using U.K. data from 1861-1957, implied that policymakers could permanently lower the unemployment rate by generating higher inflation. Some years later, economists Edmund Phelps (1967) and Milton Friedman (1968), argued persuasively that any such trade-off was bound to be short-lived: once people came to expect the higher inflation, monetary policy could not keep the unemployment rate permanently below its equilibrium or “natural” level (i.e., the rate of unemployment that prevails when inflation expectations are confirmed). This claim was later borne out by the experience of the 1970s when rising U.S. inflation did not bring about the lower unemployment rates promised by the Phillips curve. On the contrary, higher inflation coincided with higher unemployment–a combination that became known as “stagflation.”
Though the Phelps-Friedman argument proved to be valid, there still remained the possibility of a short-run trade-off between inflation and unemployment. This idea led to the intellectual development of the short-run (or expectations-augmented) Phillips curve, which says that short-term movements in inflation and unemployment tend to go in opposite directions. When unemployment is below its equilibrium rate (indicating a tight labor market), inflation would be expected to rise. When unemployment is above its equilibrium