Deflation Probabilities

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 Atlanta Fed 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 2017.

A chart shows the trends of the two probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the site, in the November 21 update, states the following:

Prices of Treasury Inflation-Protected Securities (TIPS) with similar maturity dates can be used to measure probabilities of a net decline in the consumer price index over the five-year period starting in early 2011 or the five-year period starting in early 2012. One measure of the probability of deflation for the 2012–17 period rose from 9 percent on November 14 to 11 percent on November 20. The deflation probability for the 2011–16 period ticked up from 9 percent on November 14 to 10 percent on November 20.

I plan on providing updates to this measure on a regular interval.


I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog 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 1401.56 as this post is written