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Matt's Market Insights

Few financial topics elicit as strong an emotional reaction as inflation. That's probably due to a number of factors including its "hidden tax" nature as well as the seemingly ambiguous process of calculating this illusive figure. If you don't properly factor inflation and inflation expectations into your investments and planning, you could miss the mark by a wide margin. But what inflation measurement should you use?

 

Do you go with the Consumer Price Index? Personal Consumption Expenditures? The figures reported by Shadowstats? The spread between similar maturity Treasuries and Treasury Inflation Protected Securities (TIPS)?

 

Each option has its drawbacks. The CPI and PCE include nebulous processes like substitution, weighting and hedonics. Shadowstats uses outdated methodologies, which, in my opinion, are rather poor as they don't reflect or capture changes in the evolution of our economy. And the spread between Treasuries and TIPS only provides us an idea of what the market expectations of ... Log in or subscribe to continue reading.


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