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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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    References listed on IDEAS

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    1. Kevin J. Lansing & Adam Hale Shapiro, 2026. "Measuring Inflation Shock Momentum," Working Paper Series 2026-10, Federal Reserve Bank of San Francisco.
    2. Diego R. Känzig, 2021. "The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements," American Economic Review, American Economic Association, vol. 111(4), pages 1092-1125, April.
    3. Romer, Christina D. & Romer, David H., 2024. "Lessons from history for successful disinflation," Journal of Monetary Economics, Elsevier, vol. 148(S).
    4. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, February.
    5. James H. Stock & Mark W. Watson, 2007. "Erratum to “Why Has U.S. Inflation Become Harder to Forecast?”," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
    6. Kevin J. Lansing, 2022. "Untangling Persistent versus Transitory Shocks to Inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(13), pages 1-05, May.
    7. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, February.
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