Brad Zigler: Setting The Odds For New Inflation Highs

April 25, 2011

What's the probability of more inflation in our future? We run the numbers to find out.


This month, inflation hit an all-time high. No, not the Consumer Price Index. The high watermark was instead reached by the Monetary Inflation Index, a benchmark of the U.S. dollar's currency-adjusted gold purchasing power.

On April 15, the MII reached 199.03, nearly double the index's January 1999 starting value. Inflation hasn't taken a straight-line trajectory; there's been a lot of volatility during its 12-year history. The index bottomed at 70.63 in January 2001, when the greenback was stronger against both gold and the world's second reserve currency, the euro.

And in the past three years, index volatility has ballooned to produce the roller coaster—some would say "double dip"—you see in the graph below.


Monetary Inflation Index

Monetary Inflation Index


Nearly a year ago, we put on our green eyeshades to make book on the index's course over three time horizons: 100 days, 200 days and 500 days.

Back then, we felt that the index was bottoming, though we figured there were greater odds of inflation declining in the immediate near term. And indeed, that's what happened, setting up the bounce through the old high.

Now that a new high's been reached, we wonder where the index will head next. So let's pull out the eyeshades again to gauge inflation's course over the next 100-, 200- and 500-day periods.

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