Superforecasts: PCE


Superforecast: Personal Consumption Expenditures Price Index

7 December 2021
Good Judgment | Better Decisions
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What will be the percent change in the Personal Consumption Expenditures Price Index in the fourth quarter of 2022 relative to the fourth quarter of 2021?

A: Less than 0.0% [blue]
B: Between 0.0% and 1.0%, inclusive [red]
C: More than 1.0% but less than 2.0% [gold]
D: Between 2.0% and 3.0%, inclusive [green]
E: More than 3.0% [purple]


Plot Key


Opened 20 December 2019

This question will be resolved based on the Bureau of Economic Analysis’s advance estimate of the percent change in the PCE Price Index in the fourth quarter of 2022 relative to the fourth quarter of 2021. In January 2018, the advance estimate of the percent change in the PCE Price Index for the fourth quarter of 2017 relative to the fourth quarter of 2016 was 1.7% (see Table 8, line 39). The question will be suspended on 31 December 2022 and closed when the advance estimate for the fourth quarter of 2022 is released, typically in late January. Monthly PCE Price Index data are also published by the BEA. The Federal Open Market Committee releases quarterly projections on the PCE Price Index; see “Projection Materials.”

Examples of Superforecaster commentary in italics


7 December 2021 – The Superforecasters are looking at the average PCE Price Index year-on-year change since 2014 and a number of economic indicators, including the Fed’s projections, to forecast that the percent change in the Personal Consumption Expenditures Price Index in Q4 of 2022 relative to Q4 of 2021 will be at least 2.0% (with a 54% probability for 2.0-3.0%). Some of the key factors that could drive the rate higher are a continuation of the supply chain problems and a reversal in higher savings rates. The Superforecasters therefore see a 26% probability the PCE change at the end of 2022, compared to the end of this year, may exceed 3.0%.


04 Dec 21 – Comment: Some base effects may reverse. But I think this could be cancelled out by continued high demand for goods (and the difficulty that suppliers are having meeting this demand), rental inflation, etc.

03 Dec 21 – Comment: With the Fed now admitting and soon to be addressing inflation, the economy could slow by the end of 2022.

29 Nov 21 – Comment: Wages are not likely to go down. Gas prices? The release from strategic reserve will temporarily bring it down 10-15 cents. The back to the office movement has not yet played out. That would likely increase demand. Housing supply? If BBB passes, then there is a push for more low-cost housing. Probably not appreciably in 2022. When the Fed increases interest rates, that might cool demand somewhat. In summary, inflation may decrease but unlikely down to the 2% the Fed wishes. Unexpected economic collapse from a Covid variant may result in shortages and hyper-inflation.

25 Nov 21 – Comment: Econbrowser shows a marked drop in projected November 2021 inflation from the spike seen in October 2021.

17 Nov 21 – Comment: What you do think of this argument: Even if inflation gets back down to 2-3% by the end of 2022, it’s likely to have been higher in Q1-Q3 2022. Could that suggest we will almost certainly be at more than 3%?
Response: I agree that inflation will be high on an annualised basis in early and mid-2022 because monthly readings from this year have been quite high. But once we get to Q4 2022, monthly readings from 2022 will dominate, so if they average something like 0.2% per month in 2022, then we should land between 2% and 3%.

16 Nov 21 – Comment: A pre-mortem for how this question could settle at 1.0% or lower. The most obvious path to me is a collapse in energy prices. In late 2014, Crude prices fell about 50% in a few months. PCE only fell from about 1.6% to about 0.3. I do think that a similar crude collapse is possible and that it could contribute to us hitting 1.0% or lower, but it’s pretty unlikely.

15 Nov 21 – Comment: All observers agree that the current period of high inflation is, in part, being caused by very high demand. More goods are going through ports than was the case pre-pandemic, for instance. High demand is, in turn, attributed to fiscal and monetary stimulus, plus a pandemic-related shift of spending from services to goods. Presumably, though, demand will ease as consumers eat into their savings, particularly over the Christmas period. Whether or not Biden’s Build Back Better bill passes will also matter. Larry Summers, who was predicting high inflation back in March, thinks housing, labor, and energy supply issues will begin to subside in 6-9 months, but that they’re more likely to go on for longer [2] than to improve quickly. Goldman Sachs (who did not predict high inflation) claims that core PCE will be back down to 2.3% on an annualised basis by the end of 2022, but says that there’s an upside risk. This strongly suggests that inflation below 2% by the end of 2022 is very unlikely, unless the Fed becomes much more aggressive and there’s a recession.

15 Nov 21 – Comment: If inflation is supply chain-driven, there are many moving parts, so the potential for inflation staying high is there. Oil-producing countries have an incentive to get all they can while they can, so do not expect much change there. 1-2%, 2-3%, and >3% are all possible.

14 Nov 21 – Comment: A chart from the Econbrowser for CPI YoY through 2022 shows wildly different projections. This is not the PCE, but nevertheless interesting.

07 Nov 21 – Comment: 2021 will finish between 4.5% and 5.0+, strongly influenced by supply chain shortages. The 2022 result will be dependent on improvements in product supply.

07 Nov 21 – Comment: Passage of the infrastructure bill means decent amount of money will still be flowing through economy, as Delta wanes and demand for services will stay high.

30 Oct 21 – Comment: Bond markets and the Fed signal they expect inflation to continue through at least early 2022.

29 Oct 21 – Comment: Shifting up, as it looks increasingly likely that early 2022 will continue to see high inflation. Even if it cools off during the year, it might end up higher for the year overall.

25 Oct 21 – Comment: The 5-year TIPS breakeven inflation rate has risen to 3%, and the market suggests an even higher rate of inflation for 2022. Treasury Secretary Janet Yellen also said she now expects supply chain backlogs to be fixed in the second half of 2022 at the earliest. Therefore, I am further updating against inflation being less than 2% and in favour of it being more than 3%.

22 Oct 21 – Comment: Per Powell’s comments today, heightened US inflation readings “are likely to last into next year.”

20 Oct 21 – Comment: Slight adjustment as inflation may continue above 3% longer than expected based upon supply/demand imbalance and the time it will take to bring these into more of a balance.

20 Oct 21 – Comment: Even officials who have an interest in presenting the rosiest possible picture in the US and UK are saying that supply chain disruptions will last well into next year. However, non-US central banks appear to be poised to raise interest rates faster than the Federal Reserve. This may help to moderate inflation in the US too.

18 Oct 21 – Comment: Fed projected 2.25% PCE for 2022 on 22 September, but it could well be higher.

15 Oct 21 – Comment: With supply chain disruptions continuing, economists are hiking inflation expectations into next year.

13 Oct 21 – Comment: It no longer looks like Covid effects would moderate by early 2022. This will push inflation well into 2022. If we see a couple of big jumps in Q1, then it will be unlikely this question can resolve as less than 2.0%.

05 Oct 21 – Comment: chart from Longview Economics demonstrates that US households have a whopping amount of cash in the bank as of Q2/21. What happens if this cash starts chasing goods that are supply-constrained? It would appear that there should be a bias to the higher PCE change to reflect this possibility.

04 Oct 21 – Comment: PCE is traditionally 0.5 lower than CPI. Still thinking D. If CPI is in the 5 range Q4 this year and 2 to 3 range next year, then PCE change would be 2.0-3.0%.

27 Sep 21 – Comment: Shifting a few points to higher inflation on supply chain issues and tight labor market.

19 Sep 21 – Comment: Inflation is moderating some.

13 Sep 21 – Comment: Shifting my forecast toward higher inflation: Wage growth is continuing and there are some signs that supply chain issues will persist well into 2022.

09 Sep 21 – Comment: The Fed is likely to remain in an accommodating mode and allow a 2.0+% inflation for a period.

06 Sep 21 – Comment: As a starting point: (1) ~1.65% is the 10-year average. (2) Current run rate is in the ~4.2% range, which is at least in part a catch up from artificially low numbers in July 2021. So my starting point is that we’re probably talking about a number in the 1.5-4.0% range. I’ll call it 2.0% expectation +/- 1.2% standard deviation. I’ll consider 3 US GDP growth scenarios: (1) Recession: ~20% probability (1/5 years); reduce inflation expectations by 1%. (2) Continued growth: I’ll call this ~50%. (3) Strong growth: With stimulus, I’ll call this ~30% probable; increase inflation expectations by 1%, stderr 1.5%. We’re talking about something fairly far in the future and the error bar should be pretty wide.

05 Sep 21 – Comment: Spending is going down, so that might drive PCE lower than +3.0%.

29 Aug 21 – Comment: Q2 was 3.4%. Inflation has still held at 5.4% in July, but excluding food and energy the monthly increase actually dropped. Near-term, the hurricane Ida might result in energy prices going up.

28 Aug 21 – Comment: Estimating Q4 2021 near 5%, inflation risk for 2022 increases the odds for “more than 3.0%.”

22 Aug 21 – Comment: Supply chain problems are ongoing. It looks like inflation will remain, with supply problems and rising wages, but QE tapering and raising rates next year might cool some sectors to moderate this effect.

08 Aug 21 – Comment: Inflation seems to be slowing down a bit from highs earlier this spring. I expect it to return to the base rate in 2022.

08 Aug 21 – Comment: 3.4% in Q2 2021. 2022 is likely to be less than 2021.

04 Aug 21 – Comment: There can be short-term inflation, but in the long run technology-based economies have enough deflation to offset it. If inflation continues in 2021, we could even see an adjustment below 0 in the short term as the economy returns to its usual curve.

01 Aug 21 – Comment: In line with previous forecasts, I expect it to be on the higher side.

24 Jul 21 – Comment: Bond yields suggest inflation is not as big a concern as current consumer data suggests it may be.

16 Jul 21 – Comment: July PCE numbers show that inflation is continuing but is concentrated in a few sectors where supply issues may resolve by early next year.

11 Jul 21 – Comment: Updated WSJ economists survey of inflation. The respondents on average expect several years of higher inflation as post-pandemic economic recovery fuels quick price increases for a while.

05 Jul 21 – Comment: There are indications that supply shortages may last well into next year in some industries.

29 Jul 21 – Comment: In their 16 June 2021 projections, the Fed are forecasting a median of 2.1% for PCE in Q4 2022, with central tendency 1.9-2.3 and range 1.6-2.5.

21 Jun 21 – Comment: According to WSJ today, supply-chain issues are likely to linger. It’s hard to get companies to lower prices once they have been raised. Effects of inflation seem likely to last well into 2022.

17 Jun 21 – Comment: The Fed expects 2.1% for 2021 and 2.3% 2022. I’m not an inflation hawk, but there is definitely more than a little chance that 18 months from now inflation may come in a little higher than 3%.

17 Jun 21 – Comment: The Fed have just updated their forecasts. Their estimate on this question is now 2.1%. Based on a paper by Reifschneider and Tulip (2017), I assume that this far out, Fed estimates have a normally distributed error with SD of about 1.12.

08 Jun 21 – Comment: Peter R. Orszag is quoting our forecast here. With that in mind, some good questions to further ponder upon: What could make the temporary surge more persistent? In other terms, for example, what are the potential self-reinforcing mechanisms that lead to inflation here being self-sustaining even after the initial supply shortages and bottlenecks improve (supporting causes being different from initial causes)? And are any of these bottlenecks stickier than one would normally expect in the post-pandemic world? Is it going to be more difficult to get truck drivers, for example, as the Op-Ed seems to indicate?

27 May 21 – Comment: The PCE index could come back down after supply chain problems get addressed and people have finished buying what they had wanted to buy in 2020. On the other hand, passing the AJP, AFP, or a minimum wage increase (the latter via regular order), things could jump further. And inflation can increase simply based on businesses anticipating future inflation – a positive feedback loop.

25 May 21 – Comment: Since 1970, CPI inflation has been an average of 0.5 percentage points higher than PCE inflation. Using University of Michigan’s survey number of 3.1, it would end up being 2.6. We shall see if Powell is right that CPI will drop and level off at a lower level than the current 4.52%.

18 May 21 – Comment: Fed forecast was updated today for Q2 2021 with inflation over 6% and CPE 4.86%. The notion is that it will drop back down as supply chain problems solved. Still 2022 was predicted to be about same as 2021.

15 May 21 – Comment: The average year-on-year is about 2-3%. This year it’s going to be 4% (in 2020, it was 0.3%). But that is more likely due to Covid. Between 2014 and 2020, the average was around 1.9-2.0%. That would make me think that is closer to low end of 2%, which is where I am going to anchor my base rate.

12 May 21 – Comment: April prices are 4.2% higher than a year ago. Record high savings rates, significant paying down of credit card debt, and a strengthening job market all point to higher demand over the next few years – especially given current product shortages that need to work through the system. Add to that supply chain problems that might take time to resolve – such as semiconductors – suggesting product shortages might continue for longer than expected.

24 Apr 21 – Comment: Inflation has started to pick up. Most experts seem to project that this will be a short spike that will be over by the closing time of this question. I am not so sure, for one because the Fed has indicated it will tolerate inflation above target, and I doubt the ability and willingness to curb inflation should it get out of hand.

More Superforecaster commentary is available, going back as far as December 2019.
Please contact us if you are interested in an expanded version or a more detailed analysis of this question.

Copyright 2021 by Good Judgment Inc. This presentation is solely for informational purposes. The information contained herein are not to be construed as legal, business, investment or tax advice. No representation or warranty (express or implied) is provided with respect to the accuracy, completeness, or reliability of this presentation. The future is inherently uncertain, and investors should exercise prudence and their own judgment in making investment decisions. Neither Good Judgment nor any of its directors, employees, or agents accept any liability for any loss (direct or indirect), including investment loss, or damage arising out of the use of the information herein. Any opinions expressed in this document may change without prior notice.


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