How Does LLM Help Regional CPI Forecast: An LLM-powered Deep Panel Modeling Framework

TL;DR

This paper introduces a novel deep panel modeling framework that leverages large language models and social media narratives to improve regional CPI forecasting accuracy and capture market shifts.

Contribution

It develops a joint modeling strategy integrating LLM-derived surrogates with traditional data, introducing a deep panel learning procedure with region-wise homogeneity pursuit.

Findings

Reduces short-term forecasting errors significantly.

More effectively captures abrupt inflationary shifts.

Broadly applicable to enhance traditional statistical models.

Abstract

Understanding regional Consumer Price Index (CPI) dynamics is essential for timely and effective economic policymaking. However, traditional modeling procedures typically rely only on parametric panel modeling with low-frequency and high-cost macroeconomic indicators, which often fail to capture rapid market fluctuations and lead to inaccurate predictions. To this end, we propose a residual-joint-modeling framework that integrates large language model (LLM) analyses and social media narratives via a new deep neural network based panel modeling. Specifically, we construct a large narrative corpus from a newly collected {\it Sina Weibo} dataset, and develop a prompt-based GPT model and a series of fine-tuned BERT models to generate high-frequency LLM-induced surrogates for regional CPI. A novel joint modeling strategy is then advocated to transfer the information from these surrogates to the target regional CPI data and hence empower CPI prediction. To solve the joint objectives, we further introduce a new deep panel learning procedure with region-wise homogeneity pursuit, which has its own significance in panel data analysis literature. In addition, conformal-based panel prediction intervals are provided to quantify the uncertainty of the LLM-powered prediction. The proposed approach significantly reduces short-term forecasting errors and more effectively captures abrupt inflationary shifts compared to traditional econometric models. While demonstrated for regional CPI forecasting, the proposed framework is broadly applicable for incorporating insights from LLMs to enhance traditional statistical modeling.