a requirement to have extra fuel on board in case of the need to hold prior to landing, waiting for the weather to improve. the armidale forecast showed some similar periods of weather, also requiring extra fuel. more significantly, the armidale forecast indicated that there was a probability ( assessed as 30 per cent ) of thunderstorms in the area, which could persist for up to half an hour at a time. thunderstorms at the airport amount to very dangerous conditions in which to attempt a landing because of the potential for very strong winds and windshear near the ground, not to mention heavy rain or hail. even large aircraft avoid landing in such circumstances. again, this meant a requirement to have additional fuel in case of the need to hold prior to landing, waiting for the storm to pass. apart from that, the general conditions between the two airports were forecast to include isolated thunderstorms, rain and areas of low cloud, all produced by the south easterly airstream operating across much of nsw. the route goes more or less along the great divide, which means that terrain effects on weather conditions are an issue to keep in mind. bis central bankers ’ speeches these conditions did not necessarily preclude the flight, which could have been legally commenced, provided the requisite additional fuel was carried. it is very likely that it could have been safely completed. for professional pilots, who fly every day in a multi person crew environment in high performance aircraft, dealing with these conditions would be seen as reasonably routine, if a bit tedious. the main question was whether it was prudent for an amateur single pilot flying a light aircraft to conduct the flight on this occasion. it was observable that at the intended time of departure from bankstown, conditions there were at least as bad as forecast, while a phone call from armidale indicated that there were in fact storms present at that time. it did not look like a day on which the forecasters had been too pessimistic. the pilot in question decided to stay on the ground. the point of this little diversion into aviation is to make a few observations about the nature and use of forecasts, which i think have some relevance in the economic sphere. the first is that the weather forecasters had understood what i would call the “ big forces ”. in this case, there was a high pressure system over tasmania, and a low pressure system off the north - east coast of nsw. this combination fed very

the underlying measure, which of course is by design. hence, if the central forecast for cpi inflation at a two year horizon was 2½ per cent, the chances of the outcome being between 2 and 3 per cent, based on this historical experience, would be about two in five. the chances of being between 1½ and 3½ per cent would be three in five. i note in passing that, if this is a reasonable description of forecast accuracy, it suggests that the configuration of the inflation target is a pretty good one ( though i hasten to add that, when it was first set out, we did not really have a great deal of confidence in the accuracy of inflation forecasts ). it would, in my judgement, be vastly preferable for discussions of forecasts to be couched in more probabilistic language than tends to be the case in practice, and for there to be more explicit recognition that the particular numbers quoted are conditional on various assumptions. careful observers will have noted that the latest forecasts published by the bank actually have a range for growth and inflation at the horizon. moreover, there is more extensive discussion these days of the ways in which things could turn out differently from the central forecast. this goes at least some way to recognising the inherent uncertainties in the forecasting process, and is also important in relating the forecast to the policy decision. taking account of the accuracy statistics i have quoted above, we can characterise the rba ’ s latest published outlook as suggesting that, absent large shocks to oil prices or the australian dollar, or further extreme weather events, or the world economy taking a serious turn for the worse ( say because of events in europe ), australia ’ s inflation rate in 2012 has a pretty good chance of being between 2 and 3 per cent. the chances of a similar outcome in 2013 are also reasonable, though with slightly greater probability that inflation would end up above 3 per cent in that year than seems the case for 2012. that is, the point forecast is a little higher in the second year. even so, a margin of uncertainty is inevitable. a big change in any of the variables subject to assumptions would quite easily push outcomes away, and maybe a long way away, from the forecast. this degree of uncertainty can of course be quite disconcerting. it is only natural to desire certainty. everyone wants to know what will happen. we all want to believe that someone, somewhere, does know and can tell us what