PREDICTING TURNING-POINTS IN THE UK INFLATION CYCLE

Inflation targeting is an important component of current UK economic p olicy and this paper examines the forecasting of inflation turning poi nts using leading indicators. We identify nine complete inflation cycl es between 1958 and 1993. Leading indicators are proposed, with compos ite shorter and longer leading indicators constructed on the basis of data to June 1992. Overall, the composite indicators give clear prior turning point information with relatively few 'false signals'. They ex hibit leads at peaks which are generally longer than at troughs; corre spondingly, we find that inflation troughs are generally more difficul t to predict than peaks.