Please excuse me if this leads to nothing. . But aren't the CPI futures a representation of inflation. Maybe someone else read this article recently in FENews, where Eugene Fama says something about their not being a market in inflation. Am I missing something? What are the problems with CME CPI contracts? Do they not trade like other futures?
not sure how much volume CPI futures have, but inflation swaps are growing and there are TIPS in large volume
Do you mean CRB futures (Commodity Research Bureau Index futures?). I recall the problem with the CRB index is that there is an upper limit (about 20 %) to the weighing of any component. I recall reading that about July 2006 crude oil, in terms of total US dollar trade represents about 70 % of all commodities traded. CRB index does not accurately reflect the influence of crude oil about July 2006. I remember reading the Goldman Sachs index has no such limitation but is very much dominated by oil price now. So there are two indices, I consider both indices to be approximate measurements of inflation rates in the USA economy.
No, I thought about those commodity based indexes and I'm sure that some inflation would be reflected there, however the price of commodities simply cannot represent the rate of inflation. My problem lies deep within economics. What IS inflation? is it just a basket of goods, or is there some other was to measure it? THe CPI futures are just based on the Consumer Price Index. This does not include energy or foodstuffs. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> As far as the reference to the Eugene Fama interview, I'm sorry I read to FENews interviews that day. This one was with Ingersoll from the CIR interest rate model. I guess it's an old interview, probably from before the CPI futures started to trade. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
Inflation is really just the increase in prices(decrease in purchasing power) due to expansion of the money supply. But how do you separate this from price fluctuations due to supply & demand? The CPI certainly doesn't adjust for that.