Inflation Trend Index

The Capital Spectator’s Inflation Trend Index (ITI) is designed to provide a degree of forward guidance on the directional bias of pricing activity in real time. Note that ITI is NOT a proxy for estimating the government’s inflation measures. Rather, ITI provides a measure of how inflationary pressures are trending and whether a change in the trend appears likely or not. 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 estimate the current month’s ITI, the latest numbers are used. For data sets that are published with a lag, the last data point is carried forward as a naive forecast. ITI is comprised of the following indicators:

* Consumer Price Index (headline)
* Consumer Price Index (core)
* Average hourly earnings of private employees
* Import prices
* Inflation expectations (University of Michigan consumer survey)
* Producer prices for commodities
* Inventories-to-sales ratio for US businesses
* Treasury market’s implied inflation forecast (yield spread on nominal 5-year maturity less 5-year TIPS rate)