Inflation Forecast Update

Here at Economic Forces, we have been pushing back on the idea of “greedflation.” In my view, this idea is not consistent with economic theory. I also think there are better alternatives explanations of what brought about our recent bout of inflation. And, in fact, I have presented evidence that my quantity-theoretic view of inflation was correctly able to predict the pattern of inflation that we have observed in the aftermath of the pandemic. The evidence I presented was based on the performance of a simple forecasting model. It showed that the Quantity Theory of Money was able to forecast inflation pretty well out-of-sample. Thus, there is no need for unconventional theories and convoluted stories to explain inflation.

Nonetheless, large media outlets continue to run stories about this “idea that isn’t getting much attention” known as “greedflation.” One wonders how much glowing media coverage a particular idea needs to get before it can be considered neglected.

In any event, I thought it might be useful to revisit my simple model of inflation and see how well it has performed more recently and what predictions it has for the remainder of 2023.