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Stephen Mihm

Inflation Forecasting Is a Truly Dismal Science

Once upon a time, sheep entrails were used to predict the future. It might have worked nearly as well as today’s sophisticated inflation modeling.

Going up?

Going up?

Photographer: Robyn Beck/AFP via Getty Images

For close to 40 years, the U.S. and much of the world were blessed with low inflation. No longer. Depending on whom you believe, the dramatic price and wage spike of the last few months is either a flash in the pan or the beginning of something more ominous. Both sides in this debate speak with confidence about what will happen next. But the history of inflation forecasting suggests that humility is in order.

Every oracle relies on a different set of tools to predict the future. In antiquity, animal entrails — ideally, the liver of a sacrificed sheep — would be scrutinized for clues of things to come. In the postwar U.S., professional economists seeking to predict inflation opted for something a little less sanguinary: the Phillips Curve, named for the economist William Phillips.