An analysis of the accuracy of the Treasury's macroeconomic and tax forecasts.
The Consumers Price Index (CPI) is the headline indicator of prices of consumption goods and services in the New Zealand economy. CPI inflation, i.e. the annual growth rate of the CPI, is therefore the main indicator of price increases faced by New Zealand households.
Average CPI inflation forecast errors, at all forecast horizons, have increased since the last report, indicating that the accuracy of these forecasts has decreased over the last few years. In recent years, the Treasury has forecast CPI inflation coming back towards the mid-point of the RBNZ's 1% to 3% target range, but actual inflation has remained persistently low. Therefore, the Treasury's recent CPI inflation forecasts have tended to be a little too high, which has bumped up the long-run averages.
This recent over-forecasting of CPI inflation has contributed to evidence of statistical bias in the 0-6 month ahead forecasts, i.e. the Half-Year Update forecasts of the following March year's CPI inflation result. The standard statistical test indicates that these forecasts, on average, tend to be too high. There is not enough evidence to conclude that CPI inflation forecasts at other forecast horizons are statistically biased.