Thursday, October 23, 2008

Inflation Expectations Plunge By 2% in 4 Months And Drop to Lowest Level Since 1997

***UPDATED CHART***
The chart above shows the market-based 10-year TIPS-derived expected inflation from the Cleveland Fed, calculated from the difference between 10-year nominal treasury notes and 10-year treasury inflation-protected securities. On an adjusted basis (for an inflation-risk and liquidity premiums, see details here), inflation expectations fell to an 11-year low of 1.36% this week, the lowest since 1997 when TIPS were first introduced (see top chart above).

This is a huge drop in inflation expectations from 3.36% in June to only 1.36% this week (see bottom chart). Inflationary pressure is easing and deflating fast.

Update: The chart above is based on the Cleveland Fed's monthly data (calculated as the mean of daily data in a given month) from February 1997 (when TIPS were first introduced) to September 2008, and the average of the last four days this week (1.462%, 1.441%, 1.495% and 1.026%) for October 2008 (1.36% this week).

12 Comments:

At 10/23/2008 11:47 PM, Anonymous Anonymous said...

Just a thought: if inflation is always a monetary phenomenon, shouldn't we be expecting more inflation in the coming years? I mean, if the bailout craze continue, the Fed will be printing money like there's no tomorrow. And if a recession occurs, less goods will be produced. End result: more greenbacks chasing fewer goods... No?

 
At 10/24/2008 12:43 AM, Anonymous Anonymous said...

Helicopter Ben is going to have to trade that little darling in and get a fleet of 747's.

Deflationary depression at 6:00

 
At 10/24/2008 1:06 AM, Anonymous Anonymous said...

We're in a once-in-a-century deflationary scenario. That's much worse than an inflationary environment - even with high inflation.

The only thing that could be worse is hyperinflation.

 
At 10/24/2008 1:17 AM, Anonymous Anonymous said...

Somebody forgot to tell my local grocery and department stores about this graph their prices aren't declining.

 
At 10/24/2008 1:37 AM, Anonymous Anonymous said...

The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
http://www.reuters.com/article/bondsNews/idUSPEK466920081024

Absolutely, 5% of the world population with their fiat currency has done quit enough damage. Time for Bucky to go the way of the dodo bird.

 
At 10/24/2008 6:39 AM, Blogger Free2Choose said...

"The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday."

Well, if a State-run news agency like Xinhua says it, then it must be true right? I think you can do better than that, "comrade."

 
At 10/24/2008 7:21 AM, Anonymous Anonymous said...

Exploiting the dollar's dominance? Where have you been the past six years!

 
At 10/24/2008 10:27 AM, Anonymous Anonymous said...

I love, just love your graphics, but you alude to 1997 but don't show the data. Why?

 
At 10/24/2008 11:35 AM, Anonymous Anonymous said...

Doesn't inflation normally fall when the economy goes over the cliff?

 
At 10/24/2008 1:21 PM, Anonymous Anonymous said...

You boys and girls had better start boning up on Fishers Debt-Deflation Theory. This ain't gonna have a happy ending.

 
At 10/24/2008 5:45 PM, Anonymous Anonymous said...

"Somebody forgot to tell my local grocery and department stores about this graph their prices aren't declining." Food prices are sticky probably because demand for food is relatively static and it will take a while(2 months?) for lower gas prices to effect the supermarket.

 
At 10/24/2008 10:48 PM, Anonymous Anonymous said...

Prices for corn have dropped to about half what they were at their peak which will ease prices on a whole range of products sweetened with corn syrup in addition to reducing feedstock prices. Steel, and aluminum prices are also trending lower due to reduced demand from China.

There is another shoe waiting to drop, namely, How's Obama going to raise 4.3 trillion dollars (or 175 ways to spend your money).

 

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