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28 June 2023
Online version
Past The Peak: ChatGPT Hype And Headline Inflation
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We have been getting a lot of questions about how ChatGPT has shaken things up for us, so here is our takeaway:
For background, we have been developing large language models applications in macro since 2018. ChatGPT has only made us more confident about their potential.
While transformer models have grown exponentially lately, the difference in accuracy between 2020 and 2023 models is barely noticeable on our training samples. The truth is, the larger those models, the more difficult (and expensive) their training.
Like many practitioners, we have found that investing in more training data gives us more bang for our buck at this point.
Frequent "hallucinations" is a well-identified quirk with generative language models like ChatGPT. But they can be totally avoided in a more targeted implementation. By training our transformer models to focus on specific tasks, such as identifying news pertinent to near-term inflation forecasts, we can circumvent these issues.
Bottom line? ChatGPT has made us even more confident about the still largely untapped potential of targeted Large Language Models implementations in our field.
See also: What do ChatGPT and Natural Language Processing Mean For Research and Investment? AMS Newsletter, 13 January 2023.
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Energy Price Normalization
Inflation normalization will likely remain a long and, possibly, incomplete process. In some areas, though, progress has been more rapid.
In a normal cycle, energy prices help align headline inflation phases across regions (bar seasonal factors). They played the opposite role between April 2022 and March 2023, when region-specific energy shocks dominated (see for instance this blog post).
Our data has started to indicate this unusual phase came to an end and Energy price pressures have been re-synchronizing lately, at least across the US, Euro area and UK regions, which will help align headline inflation:
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NIPI To Track US Food Prices: An Update
During COVID, our news-based data successfully captured unusual shocks (for instance here).
Now that inflation pressures are in an easing phase, We show how the data is still a reliable and timely turning point indicator, looking at recent US Food prices developments: read more.
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NIPI Charts Update
The NIPI sample charts on our website have been updated, up to 26th June 2023.
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Earlier newsletters
Newsletter: Is this "Normal"?, 10/3/2023. Available here.
Blog Post: Could Japan Inflation Dynamics Be Spiraling Out of Control?, 7/3/2023. Available here.
Newsletter: The Inflation NewsBot Just Learnt Two New Languages!, 24/1/2023. Available here.
Newsletter: What do ChatGPT and Natural Language Processing Mean For Research and Investment?, 13/1/2023. Available here.
Newsletter: Inflation Volatility Regime Change And Alternative Data, 17/11/2022. Available here.
How Does Our NIPI Track Official Inflation: US Headline CPI, Sept. 2022 Release, 13/10/2022. Available here.
Newsletter: Japan News Coverage & Energy Divergence, 2/9/2022. Available here.
Can the NIPI Identify Inflation Downturns as Well as It Has Signalled Upturns?, 18/8/2022, Available here.
Loud and Clear: Combine Our NIPI (Direction) And NVI (Volume) To Spot Inflation Turning Points, 18/8/2022, Available here.
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