Despite recent increases in the prices of crude oil and gasoline, energy prices overall are below last year’s peak; the rate of increase in shelter costs seems likely to slow, although the timing remains uncertain; and long-run inflation expectations, as derived from both surveys and market-based measures of inflation compensation, have remained contained.
Because of the lags in the response of inflation to changes in the monetary policy stance, any forward-looking monetary policy framework requires a forecast of inflation. However, forecasts should be used with the required degree of caution. Forecasts are, by definition, surrounded by uncertainty, and knowledge about the degree of forecast uncertainty is essential for decision-makers.