Difficult to make forecasts when conditions change drastically
Economic Commentaries, News Neither the central banks nor other forecasters predicted how quickly inflation would rise in 2021 and 2022, and inflation forecasts accordingly showed major forecasting errors. The Riksbank's forecasting ability for 2021 was good. In 2022 it was worse, but not the worst.
After many years of low inflation, consumer prices rose rapidly in 2021 and 2022. Inflation targets and the forecasting ability of central banks were tested to an extent not seen since the targets were introduced. The central banks' forecasts for inflation showed large forecasting errors, which led to criticism.
In the economic commentary, “Cruising to victory or dead heat? Central Bank Championships in forecasting ability”, the authors compare the Riksbank's forecasts for CPIF inflation, which is the Riksbank's target variable, with nine other central banks' forecasts for their own target variables in 2021 and 2022. The comparison shows that the ten central banks were on the whole equally good, or equally bad, at forecasting their inflation target variables in 2021 and 2022, when taking into account the fact that inflation varied in different ways from one country to the next.
Different approaches yield slightly different results and the study should not be interpreted as an overall assessment by the Riksbank of either its own forecasting ability or that of other central banks.
Authors: Christina Håkanson and Stefan Laséen, who work at the Monetary Policy Department.
Economic Commentaries
Economic Commentaries are short analyses of issues relevant to the Riksbank. They may be written by individual members of the Executive Board or by employees at the Riksbank. Employees’ commentaries are approved by their head of department, while Executive Board members are themselves responsible for the content of the commentaries they write.