Monday, October 06, 2008

Expected Inflation At a Six-Year Low (Unadjusted)

10-year TIPS-derived expected inflation

The charts above show the market-based 10-year TIPS-derived expected inflation from the Cleveland Fed (both unadjusted - top two charts, and adjusted - bottom chart), calculated from the difference between 10-year nominal treasury notes and 10-year treasury inflation-protected securities. On an unadjusted basis, inflation expectations fell to a six-year low of 1.47% last week, falling below 1.5% for the first time since September of 2002 (see top chart above).

After adjusting for an inflation-risk premium and a liquidity premium (see details here), the Cleveland Fed's adjusted measure (2.45%) shows that expected inflation is the lowest since early November 2007 (see bottom chart above).

MP: As Frederic Mishkin wrote several weeks ago in the WSJ, "Don't worry about inflation." We might have many other economic concerns right now, but I think it's time to take inflation off the list of economic variables to worry about.


At 10/06/2008 8:46 AM, Anonymous Anonymous said...

Deflation is the actual concern.

At 10/06/2008 9:21 AM, Anonymous Anonymous said...

Duh...of course inflation ain't the concern's deflation!!!

At 10/06/2008 9:29 AM, Blogger juandos said...

Hmmm, deflations, eh?

I can't help but wonder if the dropping price of crude is a potential indicator of deflation?

At 10/06/2008 2:50 PM, Anonymous Anonymous said...

Duh. We're in a once in a lifetime deflation, the likes of which hasn't been seen since the Depression. Perhaps finally Mr Perry will come around from his Pollyannaism. Especially after the abysmal 3rd quarter earnings are announced.

At 10/07/2008 7:45 AM, Anonymous Anonymous said...

why is everyone saying DUH? These charts are useful. Although many have been discussing deflation, not inflation since the beginning of 2008 in the blogosphere!

I discussed this in late August & again in early SEPT as the commodity bubble began to burst:

Media Hops on Rate Cut Wagon

"With the commodity bubble bursting, inflation expectations are likely to fall significantly in coming reports."

At 10/07/2008 10:11 AM, Anonymous Anonymous said...

Well well well...what will this do to all the long lived blogosphere luddites who believe the 'real inflation rate' has been 7% for god knows how long? During a 'Bama administration, do you think we'll get ANY MORE COMPLAINTTS from the media about hedonic price adjustments?

At 10/07/2008 1:19 PM, Anonymous Anonymous said...

Inflationary conspiracy theorists , such as the Tin Foil Hatters on "the Big Picture" blog , still think inflation is the problem as they whistle past the graveyard

At 10/07/2008 5:40 PM, Anonymous Anonymous said...

@ 1:19

So your "essentials" are decreasing in cost? Food, medical insurance, cost of education for your kids, heating/cooling/utility bills?

You must have switched from brand names to generics, raised your deductible and gone to catastrophic only policy coverage, decided Ivy League is out and community college will do, and started chopping wood while the kids wave palm fronds to stir up a breeze...

Ben B.'s benchmarks are all wrong and you are mistaking Asset Deflation & Credit Destruction (due to bad debt from credit expansion that never should have been created in the first place) for Goods and Services Price levels.


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