Longer-term deflation probabilities inch higher May 24, 2012

The Inflation Project includes a deflation probability constructed from different Treasury Inflation-Protected Securities (TIPS) prices than previously considered, as well as the probability measure used in previous posts. Using the 5-year TIPS maturing in April 2017 recently issued by the U.S. Department of the Treasury along with the 10-year TIPS maturing in July 2017, we construct a deflation probability for the early 2012 to early 2017 period. The chart reflects this new probability.

Prices of 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 was 12 percent on May 23, up from 11 percent a week earlier. The deflation probability for the 2011–16 period remained at 11 percent.

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