Unfortunately, inflation tends to be difficult to predict accurately.

For example, if a consumer is thinking about taking out a loan, it helps to know how quickly wages and prices will be rising during the life of the loan-after all, it will be much easier to service the loan with stronger wage and price growth. The Federal Reserve pays close attention to inflation because of its impact on the economy and because the Federal Open Market Committee has been explicitly tasked by Congress through the Federal Reserve Act to promote the goals of maximum employment and price stability, the so-called “ dual mandate.” When making decisions, consumers and businesses may have to forecast the inflation rate far into the future. Inflation is a topic of perennial interest because it influences the behavior and plans of consumers, businesses, financial markets, pension funds, governments-in essence, everyone in an economy. But historically, the Cleveland Fed’s model nowcasts have done quite well-in many cases, they have been more accurate than common benchmarks from alternative statistical models and even consensus inflation nowcasts from surveys of professional forecasters. As with any forecast, there is no guarantee that these inflation nowcasts will be accurate all of the time. The model generates nowcasts of monthly inflation, and these are combined for nowcasting current-quarter inflation. Our inflation nowcasts are produced with a model that uses a small number of available data series at different frequencies, including daily oil prices, weekly gasoline prices, and monthly CPI and PCE inflation readings. These forecasts can help to give a sense of where inflation is now and where it is likely to be in the future. The Cleveland Fed produces nowcasts of the current period's rate of inflation-inflation in a given month or quarter-before the official CPI or PCE inflation data are released. Nowcasts are estimates or forecasts of the present. The Federal Reserve Bank of Cleveland provides daily “nowcasts” of inflation for two popular price indexes, the price index for personal consumption expenditures (PCE) and the consumer price index (CPI).

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