Figure on TIPS-based inflation compensation, 2003-07. Data are plotted as two curves. Five-year, five-year forward inflation compensation fluctuates around an average of about 2.75 percent. It begins 2003 at about 2.75 percent, falls to about 2.25 percent in the middle of that year, and then rises to around 3.25 percent toward the end of 2003. It then fluctuates between 2.75 percent and 3.25 percent through the middle of 2004 and by the middle of 2005 falls to about 2.5 percent. It then varies within a relatively narrow range around 2.5 percent through early 2007. Five-year inflation compensation is about 1.25 percent at the beginning of 2003 and then rises gradually to a peak of just under 3 percent in the first half of 2005. It then fluctuates within a 50 basis point band around 2.5 percent through the end of 2006, when it falls more sharply to about 2 percent before rising again to near 2.5 percent in early 2007.

Note: The data are daily and extend through February 7, 2007. Based on a comparison of the yield curve for Treasury inflation-protected securities (TIPS) with the nominal off-the-run Treasury yield curve. Source: Federal Reserve Board calculations based on data provided by the Federal Reserve Bank of New York and Barclays.