US Inflation Tracking Index: November 2010

November 30, 2010 by Roberto Rigobon Leave a reply »

As part of the BPP we are not only constructing average price indexes – such as those you can see in the web page – but also construct tracking indexes with the purpose of predicting macroeconomic variables. We are working on predicting the CPI seasonally-adjusted announcements, the PCE, and even the GDP. These tracking indexes use the information from daily price changes to improve standard models that predict the macroeconomic performance of the US economy.

We started in the most obvious place – trying to forecast what the BLS will announce in terms of monthly inflation. Although the BLS publishes the inflation of November in mid December, today is the last day of  the month so we already have a measure of the inflation rate of the retailers in our data. So, here we go…

Our prediction is that the BLS will announce November’s inflation rate (headline, seasonally-adjusted) of 25 basis points. Our models produce estimates between 21 and 27 depending on how the different prices are aggregated. Well, we now have to wait 15 days to see how close we are… that long? yes… that long.

An important point: this estimate is different from the inflation you can compute in the average of online prices (the indexes we are showing on this page). They are related but not identical. We are not going to release the tracking indexes yet. We are at the stage in which we are mostly testing and researching the best way to do the prediction.