The macroeconomic environment is being shaped by the interest rate reversal and heightened uncertainty. So far, the German financial system has coped well with the rise in interest rates over the last year, but the effects of this rise have not yet fully materialised. Structural change in the economy is also likely to further increase credit risk.

Forecasting current month inflation (“nowcasting”) is a highly important exercise for central banks and market participants, especially in turbulent times. In a new study, researchers investigate how millions of granular weekly scanner data from households combined with machine learning (ML) techniques can improve the nowcast of monthly German inflation.