Thursday, April 13, 2017

Deflation Probabilities – April 13, 2017 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”
As stated on the site:
Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2021.
A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.
As for the current weekly reading, the April 13, 2017 update states the following:
The 2015–20 deflation probability was 1 percent on April 12, unchanged from April 5. The 2016–21 deflation probability was 1 percent on April 11—the first positive reading since January 17—but fell back to 0 percent on April 12. These 2015–20 and 2016–21 deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2015 and early 2016, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2015 and April 2016 and the 10-year TIPS issued in July 2010 and July 2011.
I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2335.09 this post is written

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