Update Google has a fascinating research paper available about how it predicts search trends.

Some of the key findings from this research are highlighted in this post at Googles ResearchBlog. Original ArticleGoogle announced a new forecasting feature for its Insights for Search tool today. The feature works for some queries, but there are certain terms for which the feature cant handle because of past values. The forecasting is based on an extrapolation of the historical trends and search patterns.