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Should the unanticipated slowing of inflation that has occurred since early 2012 raise doubts about the reliability of inflation forecasts? We answer this question by conducting a few exercises with a common macroeconomic forecasting model. Our results indicate that even though inflation turned out to be much lower than forecasted, it still fell well within a normal range of uncertainty, and most of the deviation from the original forecast was a response to other economic developments.

Forecasting Implications of the Recent Decline in Inflation