A New Inflation Index For Monitoring Price Trends
James Picerno | May 28, 2021 03:37PM ET
Inflation anxiety is rising, and not without reason. Several inflation indexes that are widely followed accelerated sharply in April, along with various price sentiment measures and key commodities. In an effort to extract more signal and less noise, CapitalSpectator.com introduces a seven-factor measure of inflation – the Inflation Trend Index (ITI).
The idea here is that every inflation index (or proxy) comes with its own unique set of issues. At the same time, aggregating a mix of data sets may provide a clearer picture of how inflationary pressures are evolving by pulling together numbers that are, to some degree, complimentary as a group. To that end, ITI is comprised of rolling one-year percentage changes for the following indicators:
- Consumer Price Index (headline)
- Core Consumer Price Index
- Average hourly earnings of private employees
- Import prices
- Inflation expectations (University of Michigan consumer survey)
- Producer prices for commodities
- Treasury market’s implied inflation forecast (yield spread on nominal 5-year maturity less 5-year TIPS rate)
The arrival of new data varies, depending on the indicator. For numbers published with a lag vs. the counterparts, the last data point is carried forward and so ITI is updated more frequently throughout each month than the standard inflation indexes. Next, the median and mean of the rolling one-year changes are calculated, as show in the chart below.
Not surprisingly, the results echo the sharp jump in inflation data shown elsewhere. The question is whether this surge is a temporary effect as the economy comes back to life or a sign of hotter inflation that endures? The answer awaits in the months ahead. Presumably, ITI will offer a relatively early clue ahead of the official inflation numbers.
As new results are published, ITI will be updated accordingly, offering a real-time measure of how the inflation trend is changing. In a future post, I’ll add forecasts, based on combination forecasting via eight models.
Meanwhile, the crowd is on high-alert for incoming signs of where inflation is headed. We’ll keep you posted by way of ITI’s spin on the trend.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.