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How we missed the inflation surge: An anatomy of post‐2020 inflation forecast errors

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  • Christoffer Koch
  • Diaa Noureldin

Abstract

This paper analyzes the inflation forecast errors over the period 2021Q1–2022Q3 using forecasts of core and headline inflation from the International Monetary Fund World Economic Outlook for a large group of advanced and emerging market economies. The findings reveal evidence of forecast bias that worsened initially and then subsided towards the end of the sample. There is also evidence of forecast oversmoothing, indicating rigidity in forecast revision in the face of incoming information. Focusing on core inflation forecast errors in 2021, four factors provide a potential ex post explanation: a stronger‐than‐anticipated demand recovery; demand‐induced pressures on supply chains; the demand shift from services to goods at the onset of the pandemic; and labor market tightness. Ex ante, we find that the size of the COVID‐19 fiscal stimulus packages announced by different governments in 2020 correlates positively with core inflation forecast errors in advanced economies. This result hints at potential forecast inefficiency, but we caution that it hinges on the outcomes of a few, albeit large, economies.

Suggested Citation

  • Christoffer Koch & Diaa Noureldin, 2024. "How we missed the inflation surge: An anatomy of post‐2020 inflation forecast errors," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(4), pages 852-870, July.
    • Handle: RePEc:wly:jforec:v:43:y:2024:i:4:p:852-870
    DOI: 10.1002/for.3088
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    1. Mr. Allan Timmermann, 2006. "An Evaluation of the World Economic Outlook Forecasts," IMF Working Papers 2006/059, International Monetary Fund.
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    1. Anna Lipinska & Enrique Martínez García & Felipe Schwartzman, 2025. "Pandemic and War Inflation: Lessons from the International Experience," Working Papers 2534, Federal Reserve Bank of Dallas.
    2. Anil Ari & Carlos Mulas-Granados & Victor Mylonas & Lev Ratnovski & Wei Zhao, 2026. "One Hundred Inflation Shocks: Seven Stylized Facts," International Journal of Central Banking, International Journal of Central Banking, vol. 22(1), pages 391-548, January.
    3. Borowski, Jakub & Jaworski, Krystian, 2025. "The impact of excess household savings on inflation dynamics in the EU during the COVID-19 era," Structural Change and Economic Dynamics, Elsevier, vol. 75(C), pages 213-227.
    4. Ascari, Guido & Grazzini, Jakob & Massaro, Domenico, 2024. "Great Layoff, Great Retirement and Post-pandemic Inflation," CEPR Discussion Papers 19068, Centre for Economic Policy Research.
    5. Ghirelli, Corinna & Pérez, Javier J. & Santabárbara, Daniel, 2025. "Forecast errors and the sacrifice ratio of monetary policy in the euro area," Economics Letters, Elsevier, vol. 257(C).
    6. Eunkyu Seong & Seojeong Lee, 2026. "Are the Bank of Korea's Inflation Forecasts Biased Toward the Target?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 45(3), pages 1092-1109, April.

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