Tuesday, May 27, 2008

Inflationary Expectations Are Deflating?

The chart above shows inflationary expectations from January 2004 to April 2008, calcuated as the spread between: a) the yield on regular 10-Year Treasury notes (constant maturity, data here) and b) the yield on 10-Year Treasury Inflation-Indexed Securities (data here). The data suggest that a) inflationary expectations are going down, not up (see trend line above) and b) inflation expectations were much higher in 2004, 2005 and 2006 than in 2007 and 2008?

2 Comments:

At 5/28/2008 1:49 AM, Blogger Gabriel said...

How much of that trend is causes by changes in the liquidity premium? -- How thick is the market for TIPS?

 
At 5/28/2008 4:57 AM, Anonymous Anonymous said...

FRB Cleveland is on the case:

The TIPS-derived measure of inflation expectations underestimates SPF [Survey of Professional Forecasters] expected inflation and on average actual expected inflation by 50 basis points.

It appears that the adjusted 10 year TIPS derived expected inflation is rising not falling.

 

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