Prediction Markets Surpass Wall Street in Inflation Forecasts, Study Reveals

Prediction Markets Outperform Wall Street in Inflation Forecasting

A study by Kalshi shows that prediction market traders consistently outperform traditional financial analysts in forecasting inflation, particularly when actual readings significantly differ from estimates. This research, shared with CoinDesk, highlights the superior accuracy of market-based predictions over a 25-month period, especially in volatile economic conditions.

Accuracy and Economic Volatility

The study found that market-based forecasts of the Consumer Price Index (CPI) had a 40% lower average error than consensus forecasts from February 2023 to mid-2025. When CPI figures sharply deviated from expectations, Kalshi's predictions were up to 67% more accurate than consensus estimates.

Understanding Prediction Markets

Unlike traditional forecasting methods, prediction markets like Kalshi and Polymarket aggregate forecasts from individual traders who have financial incentives to predict accurately. This "wisdom of the crowd" effect allows for diverse inputs, from sector-specific trends to alternative datasets.

Recent developments include Kalshi's integration into the Phantom crypto wallet and a $1 billion fundraising, highlighting growing interest in prediction markets. Polymarket is also reportedly seeking a valuation as high as $15 billion.

Implications for Forecasting

The report suggests that incorporating market-based signals into traditional forecasting could provide valuable insights, especially during periods of structural uncertainty. Market pricing's real-time nature offers an advantage over consensus estimates, which are often finalized days before data releases.

The study concludes that prediction markets offer a valuable tool for risk and policy planning, especially when the forecasting environment is challenging.