Given concerns about large budget deficits and quantitative easing feeding into inflation even as actual inflation was falling, I wondered what standard measures indicated. This follows up on the same question I posed in May of last year.
First, here is the annualized 3 month change in price indices.
Figure 1: Annualized 3 month growth rate of CPI-All (blue bold), CPI-Core (red), Personal Consumption Excpenditure (PCE) chain-index (teal bold), PCE-Core (lavender). Gray shaded area denotes recession dates, assuming trough at June 2009. Source: BLS and BEA via FREDII, NBER, author’s calculations.
The trend looks downward to me.
What about expectations? From the Survey of Profession Forecasters:
Figure 2: One year expected GDP deflator inflation (blue), one year expected CPI inflation (red), and ten year expected inflation (bold green). Observations pertain to mid-quarter month. Gray shaded area denotes recession dates, assuming trough at 2009Q2. Source: Philadelphia Fed Survey of Professional Forecasters.
Little evidence of a surge here.
Strangely, there are many skeptics of economists who read this weblog, so I will also appeal to market based measures of inflation expectations. In the graph below, I plot the 10 year expected inflation from Figure 2, as well as the 10 year Treasury-TIPS and 5 year-TIPS spreads.
Figure 3: ten year expected inflation (green squares), ten year implied inflation from 10 year Treasury-TIPS spreads (dark blue bold line), and five year inflation from 5 year Treasry-TIPS spreads. Gray shaded area denotes recession dates, assuming trough at 2009Q2. Source: Philadelphia Fed Survey of Professional Forecasters, and FREDII.
In sum, it is hard to see why so many individuals are in mortal fear of incipient inflation (e.g., )For those who believe in the Phillips curve, there is even less reason to believe a surge in inflation is just around the corner, given the massive (negative) output gap .
Update: 8 July, 6:15am Pacific: Reader CP admonishes me to look at money supply, and cites a change in a nominal dollars. I prefer to look at M2/GDP, i.e., inverse velocity in the quantity identity.
Figure 4: End-of-quarter M2, seasonally adjusted, divided by nominal GDP. Source: Fed via FREDII, and BEA, 2010Q1 3rd release, NBER, and author’s calculations.
I still don’t see hyperinflation…