The Forecast Round
The Number Is a Distribution
Two projections both say 2.5%. One of them should keep you awake and the central number cannot tell you which.
12 min155 XP available4 challenges
A fan chart draws the distribution around a projection. The central line is the mode; the shaded bands are where the outturn might actually land. Policy does not respond to the central line — it responds to how much of the distribution sits somewhere unacceptable, which is why the same forecast justifies different decisions depending on how confident anyone is in it.
Probability of exceeding it
29.92%
The part of the fan above the line
Inflation at the policy horizon
Standard deviation — about 1pp two years out, historically
With the central projection at 2.5%, reach a one-in-three chance of inflation above 3%
- Try 0.2% — not yet
- Try 2% — not yet
- With the central projection at 2.5%, reach a one-in-three chance of inflation above 3% — not yet
Answer to continue.