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Measuring Inflation Shock Momentum

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Abstract

We develop a non-parametric filter that identifies sustained directional runs in shocks to monthly inflation—a concept we define as “inflation shock momentum.” By assessing the shocks to over 100 disaggregated Personal Consumption Expenditures (PCE) inflation categories, we isolate the share of categories experiencing positive or negative inflation shock momentum in a given month. We define the “Inflation Shock Momentum” (ISM) index as the net positive momentum share of expenditure-weighted categories (positive minus negative) in a given month. We show that the ISM index helps to forecast aggregate PCE inflation at horizons of 1 to 3 years, even after controlling for a variety of other inflation predictor variables. The ISM index is particularly useful in capturing emerging disinflationary pressure and can be used to help forecast future inflation movements in real time.

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  • Kevin J. Lansing & Adam Hale Shapiro, 2026. "Measuring Inflation Shock Momentum," Working Paper Series 2026-10, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:103112
    DOI: 10.24148/wp2026-10
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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