Inflation Expectations over Time by Duration

Below, Corrections depicts two different of the 10-year expected inflation rate (that is, the average yearly rate of inflation over the next ten years).  The first comes from the Cleveland Fed, and the second comes from the TIPS break-even rate.

First, we depict three different Cleveland Fed inflation expectations series (click to enlarge):  for the most part, from the 1980's onwards it took time for people's inflation expectations to fall from the highs of the 1970's and they currently range around 1 to 2 percent.

Below, we look at the break-even rate for 10-year TIPS vs. 10-year government bonds (click to enlarge).  Note that TIPS fell dramatically against bonds during Fall 2008, perhaps because of their relative illiquidity during a time when liquidity was highly valued (and are therefore probably not useful as a measure of expected inflation during that period).

 Finally, we look at the two measures together (click to enlarge):  they both suggest that over the next ten years, the yearly inflation rate ranges between 1.5 and 2.5%.