How to Predict Future Inflation Rates

Being able to predict the inflation rate of coming years not only gives you an important financial decision making edge but also can protect you from bad financial decisions that spell trouble down the line.

Instructions

1. Establish a long trend growth rate for a particular national economy or, if a national economy is volatile and driven by regional disparity, various regional economies. Pick a good starting point such as the growth rate of the economy since the last major economic anomaly (such as recession or boom).

2. Watch quarterly growth rates of the economy to see if they are in line with, exceeding or dipping below the long-term inflation rate.

3. Assume that there will be a normal rate of inflation (i.e. the rate that's prevailed during the long term economic growth period you're looking at) if economic growth is roughly similar to the long term growth rate.

4. Look at inflation rates of housing prices to make a rough prediction of coming inflation rates if economic growth exceeds the average growth of the long-term period. Collect data from multiple housing markets and compare housing prices (which not only indicate wealth and spending but also price inflation of supplies) from 1 to 5 years ago.

5. Use the Consumer Price Index to check how prices have been rising over the past few months and years to calibrate your prediction for inflation change over the coming months.