August 25, 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 August 24, up slightly from 15 percent a week earlier. It has trended up over the past four weeks with a cumulative increase of 6 percentage points over this period. An alternative lower bound on the probability of deflation ticked up from 1 percent on August 17 to 2 percent on August 24.