Working Paper

Measuring Inflation Shock Momentum

Abstract: We develop a non-parametric filter that identifies sustained directional runs in shocks to monthly inflation—a concept we define as “inflation shock momentum.” By assessing the shocks to over 100 disaggregated Personal Consumption Expenditures (PCE) inflation categories, we isolate the share of categories experiencing positive or negative inflation shock momentum in a given month. We define the “Inflation Shock Momentum” (ISM) index as the net positive momentum share of expenditure-weighted categories (positive minus negative) in a given month. We show that the ISM index helps to forecast aggregate PCE inflation at horizons of 1 to 3 years, even after controlling for a variety of other inflation predictor variables. The ISM index is particularly useful in capturing emerging disinflationary pressure and can be used to help forecast future inflation movements in real time.

JEL Classification: E31; E37; E52; C14; C53;

https://doi.org/10.24148/wp2026-10

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2026-04-30

Number: 2026-10