How can we forecast a rise in CPI, what factors influence CPI to increase?

Question

How can we forecast a rise in CPI, what factors influence CPI to increase?

Answer 1

First, an assessment is made of economic activity and inflation abroad, with a particular focus on developments in Europe and the United States. Developments in the financial markets are then assessed, including the exchange rate and interest rates. International price developments and the exchange rate are important determinants since they affect price developments for goods and services imported to Sweden. Finally, one forecasts economic activity, which is a key determinant of inflation.

Time series models and indicator models with strong forecasting capabilities are used to produce a first estimate of the future path of economic activity and inflation. Structural models originating in national economic theory are also employed to arrive at an overall assessment of the driving forces in economic development. In addition, the central bank uses a large number of smaller models that focus on important relationships in the economy. The advantage of the small models is that they are capable of handling a larger number of details than structural models. The collective information from all these models and other information are finally weighted together to produce an economic and inflation forecast.