Inflation or deflation, which is the consensual opinion?

This is a pretty simple indicator for gauging the worries of the mass of market participants. Of course, one shouldn’t use it in isolation for anything, but nevertheless it seems to be of some value. In the two charts below I try to measure the search volumes for ‘inflation’ compared to ‘deflation’ using google insights. Basically, when the yellow line is going up, people are worrying about inflation, when the yellow line is going down, people are worrying about deflation. (Click to enlarge)

Inflation Vs Deflation (Google Searches)inflation vs deflation (rate of change google searches)

EDIT: Although the second chart says ‘ROC’ and ‘rate of change’, it is in fact a measure of ‘deflation’ and ‘inflation’ search volumes relative to the finance category search volume. The rudimentary principle still applies (yellow line up => inflation worries, yellow line down => deflation fears).


From a contrarian point of view, I want to be opposing dogmatic convictions about the future. When these indicators are high, I’m looking to underwrite the risk of inflation and insure against deflation. When these indicators are low, I’m looking to underwrite the risk of deflation and insure against inflation. Needless to say, both charts above point to underwriting the risk of inflation and insuring against deflation right now.


EDIT: I’ll be updating this indicator on a weekly basis. I should have it online by 4:00PM ET every Saturday.


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Posted Feb 26, 2011