along with underestimating the decline in productivity growth since the global financial crisis — one of “two big macro forecasting errors” made in recent decades.
Stephen King, senior economic adviser to HSBC, blames their collective failure on rate-setters relying too much on their own capacity to control the public’s expectations of what will happen to prices in the future.
But what forecasts failed to show was that those rules only hold when inflation is broadly stable. Once price pressures soar — and stay high — people begin to believe that “the central bank is now talking nonsense”. Scepticism abounds, and recent inflation readings come to matter more than central banks’ insistence that their policies can quell price pressures.
Clare Lombardelli, the new chief economist at the OECD, noted that dire predictions of a bleak winter across Europe were based on assumptions for the weather that, by luck, was warmer than normal — meaning gas storage, and therefore economic growth, held up.
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