So perhaps it is unsurprising that some commentators have found it hard to grasp the subtleties of our forecasts. That has led some to suggest that we publish tables  10  BIS Review 36/2010  of key summary statistics on the same day as our forecasts – the mean, median and mode of the distribution. We fear that if we make such statistics available, all of our hard efforts to communicate the outlook as a whole get washed away in an extreme focus on point estimates. We do not want media commentators to summarise that outlook in a single number, preventing us getting the broader view across. As well as leading to over-simplification, publishing the information can also promote overinterpretation of our forecast. Whilst the fan chart represents the Committee’s probabilistic view of the future, it is important to recognise that it has only incomplete information on that distribution. We therefore should not overplay the particular parametric form of the chart. As a result, it makes little sense to place a lot of weight on particular summary statistics of the distribution. Rather, what the Committee can do is make broad statements – such as “inflation is more likely than not to be above the target”. Being more precise risks overstating the MPC’s degree of knowledge about the distribution. So the MPC’s concern is that early publication of the numerical parameters risks not only trivialising the policymakers’ overall view of the economy, but misrepresenting that view by being overly precise.
The darker shades refer to increasing probability densities at any given point. Of the remaining 10 out of every 100 occasions inflation is expected to lie outside the shaded part of the fan altogether. But the distribution of these tail events is not explicitly specified, as to do so would require a spurious degree of precision on the part of the MPC. The fan chart is designed to communicate specific concepts important to policy. Next, we will illustrate these using the February fan chart. But first, let’s briefly recap the recent history of inflation. Here, you can see that over the past couple of years inflation has been volatile, first rising sharply to around 5% and then falling back recently [Slide 2]. Looking ahead, the MPC felt it was likely that inflation would rise again in the first quarter of this year [Slide 3]. You can see that in this projection the entire 90% of the distribution covered by the shaded fan is higher than the last data point. Remember, though, with 10% of the distribution not specified, the MPC were not ruling out the possibility that inflation might have remained unchanged or fallen. Since this projection was published, new data have been released for inflation in January, shown by the green marker [Slide 4]. This showed that inflation had indeed risen. So it now looks even more likely that inflation in the first quarter of 2010 will be close to the middle of the MPC’s fan chart.