A funny thing happened on the way to the forecast, a Cleveland Fed economist’s attempt to sharpen the eye on inflation
Can the inclusion of the ISM’s manufacturing prices index improve inflation forecasts?
One of the timeliest inflation indicators available is the manufacturing prices index released as part of the Institute for Supply Management’s monthly report on business, the ISMPI. It’s constructed from periodic surveys of purchasing and supply executives in which respondents are asked whether they see the prices of their inputs as increasing, decreasing, or staying the same over the month.
Federal Reserve Bank of Cleveland research economist Mark Bognanni and economic analyst Tristan Young set out to test whether the producer price pressure information captured in the ISMPI could help to improve 12-month inflation forecasts on the consumer end of the equation. Specifically, Bognanni and Young focus on three broad monthly inflation measures: the producer price index, the personal consumption expenditures (PCE) price index, and the core PCE price index.
Using roughly 13,000 separate model estimations to gauge the accuracy of the revised forecasts, Bognanni and Young find that the ISMPI has some predictive content for producer prices; however, this property appears not to pass through to predictive content for consumer prices.
Read An Assessment of the ISM Manufacturing Price Index for Inflation Forecasting here.
More from Inflation Central at the Federal Reserve Bank of Cleveland
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Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, email@example.com, 513.455.4479