Can AI deliver better inflation forecasts?

Global central bankers announced on Tuesday the launch of a project to examine the possibility of using generative artificial intelligence (AI) to get more timely and accurate inflation readings.

The Bank for International Settlements (BIS), in co-operation with the European Central Bank (ECB) and Germany’s Deutsche Bundesbank, have undertaken an exercise to explore how AI could be used to enhance inflation “nowcasting” by automatically categorizing large quantities of product and price data.

According to the banks, while inflation forecasters have large amounts of price data available, that data is generally too raw, unstructured and voluminous to be processed manually.

The banks’ initiative, known as Project Spectrum, “aims to convert raw big data into accessible information using state-of-the-art AI technology to enable accurate nowcasting of inflation.”

As a first step, the project sets out to test the ability of large language models to structure available European data, including price data collected by the region’s central banks, along with global retail data.

“The developed algorithms and insights could be applicable beyond Europe,” with solutions to potentially be extrapolated to other markets and languages, the BIS said in a release.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.