Looked at Chinese Food Prices Lately?

Editor's Note: This column, written by Anirvan Banerji, appeared May 24 only on RealMoney. We're offering it today to TheStreet.com readers. For information about a free trial to RealMoney, please click here.

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This business cycle has been cruel to forecasters who based their models on simple analogies to past patterns.

It started with the late 1990s boom, during which inflation stayed low despite the virtual absence of Fed rate hikes, leading some surprised forecasters to proclaim a new paradigm of endless noninflationary growth.

Of course, that boom was followed by the first business-led recession since World War II, making it even harder than usual to predict. Then came the recovery, during which many pundits kept calling for a double-dip recession that never arrived, based on past patterns.

The optimists then called for strong GDP and job growth, oblivious to the rapid structural change that was decimating manufacturing jobs. Recognition of that shift led me to predict a lopsided recovery, featuring "a pickup in GDP growth, but not so much in job growth."

Finally, early this year, with the outlook finally changing, I forecasted a noticeable pickup in job growth. That did happen, despite the gloom of many analysts as late as the first week of April.

The success or failure of much that we do -- buying a home, quitting a job to start a new business or investing in financial markets -- depends critically on the timing of that decision, even when the decision itself might be correct. That's why it's so vital to have state-of-the-art predictors of the timing of economic turning points, ones that recognize that GDP growth doesn't always equal job growth, that a recession doesn't always make home prices dip and that the economy can experience growth without inflation, as in the late 1990s, or its opposite, 1970s-style stagflation.

Over the years, I've used these kinds of tools -- such as the Weekly Leading Index, or WLI, designed by the Economic Cycle Research Institute to predict turning points in economic growth, and the Future Inflation Gauge, or FIG, which anticipates turning points in inflation -- to make accurate forecasts. Some weeks ago, when the markets worried about job growth instead of inflation, the upturn in the FIG since the end of 2003 was already warning of rising inflation pressures. Today, inflation has become a major concern.