Research by my staff shows that while the SPF forecasts were sensitive to headline inflation data in the past, these forecasts have responded in recent years to core rather than headline inflation data.4 This finding suggests that professional forecasters no longer expect relative price changes to have a persistent effect on inflation.

Let me emphasize that I'm taking the recent inflationary pressures very seriously. A path to recovery involving stronger growth but with higher and persistent inflation would fit the old adage about winning the battle but losing the war.

For that reason, in my view, the current set of circumstances calls for being especially vigilant and attentive to public and business psychology as regards costs and prices. Policy needs to react decisively against signs of the onset of formal compensating practices, including contracts, that treat inflation as a persistent reality—in other words, something that must be lived with. Such signs are not apparent, and I don't expect them to materialize.

The evidence from these so-called autoregressions with U.S. data suggests that inflation may have grown less persistent over time...  Finally, it’s worth noting that this is not just a U.S. phenomenon, as some studies have found similar results for a number of other countries.

One notable change is that movements in inflation now appear to tell us much less about future inflation than was the case, say, thirty years ago. Here I am talking about predictions of inflation using only information on past inflation, without taking into account any other information. The evidence suggests that, at the peak of U.S. inflation in the late 1970s and early 1980s, the best such “univariate” forecast of inflation--into the indefinite future--was a simple average of inflation over the past few quarters (Stock and Watson, 2007; Cecchetti and others, 2007). In that period, sharp increases in inflation were reversed only slowly. By contrast, shocks to inflation since roughly the mid-1980s have tended to be short-lived, so that the best forecast of future inflation would be a very long average of past inflation. Thus, when inflation moves above its recent long-run average, most of the upswing will likely be quickly reversed, although this result is not guaranteed.

Some observers have suggested that the decline in measured persistence implies that inflation will moderate more rapidly in the next year or two than would otherwise be the case.  The model calibrations reported here, however, demonstrate the extent to which the autocorrelation properties of inflation depend on how monetary policy is conducted.  This implies that policymakers should be quite wary of interpreting the fall in persistence since the 1980s as something monetary policy can exploit.  If persistence has declined because policy now responds more strongly to inflation, for example, achieving a more rapid moderation in inflation may require tighter policy.

Statistical analysis of the behavior of core inflation over time also lends some support to the view that inflation expectations are well anchored. In such statistical analyses, the inflation data historically have exhibited "persistence." This basically means that, when you're forecasting inflation, it works pretty well to assume that the rate in the future will be the same as it is today. The implication of persistence is frankly worrisome: Since inflation is too high today, persistence implies it could stay too high for an extended period.

However, research suggests that if a central bank's commitment to price stability has gained credibility with the public, then the persistence observed in the inflation data will tend to be dampened. And as it turns out, recent research at the Federal Reserve Bank of San Francisco finds less evidence of persistence during the past ten years.3

"I'm comfortable presently with where we are."

...

Fisher said that inflation is "stickier" when slowing down than when it's acclerating and that "one month does not make a trend."

As reported by Bloomberg News

However, research suggests that if a central bank's commitment to price stability has gained credibility with the public, then the persistence observed in the inflation data will tend to be dampened. And as it turns out, recent research at the Federal Reserve Bank of San Francisco finds less evidence of persistence during the past ten years.3 That is, rather than sticking at a certain rate, core inflation has tended to revert to its long-run average, which, over that period, is between 1-1/2 to 2 percent. Admittedly, the past ten years constitute a relatively small sample from which to draw definitive conclusions. Nonetheless, this evidence is important because, if it holds up, it implies that inflation may move down from its elevated level faster than many forecasters expect.

In statistical analyses of inflation, the data historically have exhibited persistence. This basically means that, when you're forecasting inflation, it works pretty well to assume that the rate in the future will be the same as it is today. The implication of persistence is frankly worrisome: Since inflation is too high today, persistence implies it could stay too high for an extended period. However, recent research at the Federal Reserve Bank of San Francisco has shed new light on this issue. 1 It finds less evidence of persistence during the past ten years. That is, rather than sticking at a certain rate, inflation has tended to revert to its long-run average, which, over that period, is within my comfort zone. Admittedly, the past ten years constitute a relatively small sample from which to draw definitive conclusions. Nonetheless, this evidence is important because, if it holds up, it implies that inflation may move down from its elevated level faster than many forecasters expect.

In statistical analyses of inflation, the data historically have exhibited persistence. This basically means that, when you're forecasting inflation, it works pretty well to assume that the rate in the future will be the same as it is today. The implication of persistence is frankly worrisome: Since inflation is too high today, persistence implies it could stay too high for an extended period. However, recent research at the Federal Reserve Bank of San Francisco has shed new light on this issue. 1 It finds less evidence of persistence during the past ten years. That is, rather than sticking at a certain rate, inflation has tended to revert to its long-run average, which, over that period, is within my comfort zone.  Admittedly, the past ten years constitute a relatively small sample from which to draw definitive conclusions. Nonetheless, this evidence is important because, if it holds up, it implies that inflation may move down from its elevated level faster than many forecasters expect.