Trend models outperform traditional methods in forecasting inflation for Australia.
The article explores different models to predict inflation in Australia. Trend models, which separate trends from temporary changes, are found to give more accurate forecasts than traditional models. The best predictions for the near future come from trend models with certain features, while long-term forecasts are better with other features. These trend models can also capture important economic events in Australia, like changes in inflation due to inflation targeting and tax changes.