Summary

After many years of low inflation, consumer prices rose rapidly in 2021 and 2022. Inflation targets and central banks’ forecasting ability were tested to an extent that has not occurred since the targets were introduced. Neither the central banks nor other forecasters anticipated the rapid upturn in inflation, and consequently inflation forecasts showed large forecasting errors, which led to harsh criticism.

In this Commentary, we 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. In addition to the Riksbank, the analysis includes the central banks of Australia, Canada, the Czech Republic, the euro area, New Zealand, Norway, Poland, United Kingdom and the United States. The question we ask is whether the forecasting errors differ greatly between different central banks under these very challenging circumstances, and how the Riksbank fares in such a comparison.

We show that the ten central banks that we study have been largely equally good, or equally bad, at forecasting their inflation target variables in 2021 and 2022, when we take into account the fact that inflation varies 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.^[1] Economic Commentaries are brief analyses of issues that are 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.

Published: 19 January 2024