October 20, 2011
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. One measure of this deflation probability was 17 percent on October 19, up slightly from 16 percent a week earlier. Since increasing 5 percentage points in August, the deflation probability has been fairly stable. An alternative lower bound on the probability of deflation was 2 percent on October 19, up from 1 percent a week earlier.