Don’t Quit Your Day Job – Personal Finance, Economics and Investing

In an earlier article, I detailed how you could check on inflation expectations using information publicly available from the Department of the Treasury.  Using the data they provide, it is simple to calculate the market’s expectations for inflation over the next 5, 7, 10, and 20 Year periods.  Let’s take another look not at the 2009 inflation rate, but the expected inflation rate of the future viewed through ’2009′ colored glasses.
The Calculation

If you want to run these numbers yourself, take a look at the data set for treasury yields here and for real yield here.  Take the difference between the treasury yields and the real yield (the post inflation adjustment yield in TIPS) for whatever date range you feel like examining.  You will be able to run your own calculations on some very interesting data.

The Eye Candy

Inflation Expectations Over the Next 5, 7, 10, 20 Years

Note that expected inflation over the four available periods peaked in early June, contracted, and has recently peaked slightly.  More interesting is the following chart, which looks at the spread (in percentage points) of inflation expected in the 5-10 year and the 10-20 year period.

Strange.  There doesn’t seem to be any correlation between expected inflation and the interest in inflation from my proxy for the general public.  There’s some food for thought…  What do you think?