Submitted by CARPE DIEM

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), calcualted 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.

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