Type inference is a feature of Java which provides ability to compiler to look at each method invocation and corresponding declaration to determine the type of arguments.
Java provides improved version of type inference in Java 8.
Here, we are creating arraylist by mentioning integer type explicitly at both side. The following approach is used earlier versions of Java.

List<Integer> list = new ArrayList<Integer>();  

In the following declaration, we are mentioning type of arraylist at one side. This approach was introduce in Java 7. Here, you can left second side as blank diamond and compiler will infer type of it by type of reference variable.

List<Integer> list2 = new ArrayList<>();   

Improved Type Inference
In Java 8, you can call specialized method without explicitly mentioning of type of arguments.

showList(new ArrayList<>());  

Example
You can use type inference with generic classes and methods.

import java.util.ArrayList;
import java.util.List;
public class TypeInferenceExample {
 public static void showList(List < Integer > list) {
  if (!list.isEmpty()) {
   list.forEach(System.out::println);
  } else System.out.println("list is empty");
 }

 public static void main(String[] args) {

  // An old approach(prior to Java 7) to create a list  
  List < Integer > list1 = new ArrayList < Integer > ();
  list1.add(11);
  showList(list1);

  // Java 7    
  List < Integer > list2 = new ArrayList < > (); // You can left it blank, compiler can infer type  
  list2.add(12);
  showList(list2);

  // Compiler infers type of ArrayList, in Java 8  
  showList(new ArrayList < > ());
 }
}

Output

11
12
list is empty

Type inference for Custom Classes

class GenericClass <X> {
 X name;
 public void setName(X name) {
  this.name = name;
 }
 public X getName() {
  return name;
 }
 public String genericMethod(GenericClass < String > x) {
  x.setName("John");
  returnx.name;
 }
}

public class TypeInferenceExample {
 public static void main(String[] args) {
  GenericClass < String > genericClass = new GenericClass < String > ();
  genericClass.setName("Peter");
  System.out.println(genericClass.getName());

  GenericClass < String > genericClass2 = new GenericClass < > ();
  genericClass2.setName("peter");
  System.out.println(genericClass2.getName());

  // New improved type inference  
  System.out.println(genericClass2.genericMethod(new GenericClass < > ()));
 }
}

Output

Peter
peter
John