Reserve Bank Forecasting Errors

The chart below from Codera shows the Reserve Bank over-estimated headline and core inflation before the COVID-19 pandemic and under-estimated inflation in the period that followed.

Core inflation measures price changes in the economy, but excludes volatile items like food and energy.
Headline inflation measures price changes in all items, including food and energy.

Chart: Reserve Bank Inflation Forecasting Errors (Source: Codera)

We’ve long noted the difficulties in forecasting and how Treasury has often wildly over-estimated GDP growth in calculating expected tax receipts. No-one expects the Reserve Bank to hit it dead on the nail every time, but we wonder why – since 2020 – it has under-estimated inflation while doing the opposite in the years before 2020.

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