For my calculations, the inflation rate is critical for valuing stocks in comparison with bonds and in determining what growth rate is acceptable.
The issue is which inflation rate to use. I have been using the latest historical inflation rate (-0.20% for April); however, this is not a forward look at inflation. All investment calculations should use forward data rather than backward looking data.
The Federal Reserve makes inflation forecasts. While not definitive, these forecasts should be better than using historical data. The available forecasts are for the current, next two years, and the longer run. I have decided to use the longer run inflation forecast (2%) from the Federal Reserve, since this more closely matches the 5 year projections being used for other data.
The issue is which inflation rate to use. I have been using the latest historical inflation rate (-0.20% for April); however, this is not a forward look at inflation. All investment calculations should use forward data rather than backward looking data.
The Federal Reserve makes inflation forecasts. While not definitive, these forecasts should be better than using historical data. The available forecasts are for the current, next two years, and the longer run. I have decided to use the longer run inflation forecast (2%) from the Federal Reserve, since this more closely matches the 5 year projections being used for other data.