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Working Paper

Nowcasting U.S. Headline and Core Inflation

Forecasting future inflation and nowcasting contemporaneous inflation are difficult. We propose a new and parsimonious model for nowcasting headline and core inflation in the U.S. consumer price index (CPI) and price index for personal consumption expenditures (PCE) that relies on relatively few variables. The model's nowcasting accuracy improves as information accumulates over a month or quarter, outperforming statistical benchmarks. In real-time comparisons, the model's headline inflation nowcasts substantially outperform those from the Blue Chip consensus and the Survey of Professional Forecasters. Across all four inflation measures, the model's nowcasting accuracy is comparable to the Federal Reserve Board's Greenbook.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Knotek, Edward S., II, and Saeed Zaman. 2015. “Nowcasting U.S. Headline and Core Inflation.” Federal Reserve Bank of Cleveland, Working Paper No. 14-03R.