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Using Inflation Shock Patterns to Help Forecast Inflation

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Abstract

A new indicator—the Inflation Shock Momentum Index—can help identify emerging inflationary or disinflationary pressures in real time. The index tracks the shares of consumer spending categories that are experiencing consecutive positive or negative monthly inflation shocks, allowing detection of shifts in the underlying inflation environment. The index improves inflation forecasts at one-year to three-year horizons and responds to macroeconomic shocks in line with accepted theory. Recent index readings have fluctuated above and below zero, indicating that inflation may remain near current levels in the near to medium term.

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  • Kevin J. Lansing & Adam Hale Shapiro, 2026. "Using Inflation Shock Patterns to Help Forecast Inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2026(18), pages 1-6, July.
    • Handle: RePEc:fip:fedfel:103483
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