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 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 March 7 update states the following:
The measure of the probability of deflation for the 2012–17 period was still 0 percent on March 6, the same as the past few weeks. The 2011–16 deflation probability was 0 percent on March 6, down from 1 percent on February 27.
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 2012 or the five-year period starting in early 2011.
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 1544.26 this post is written