For a while, earlier in the year, between the Federal Reserve flooding the country with money through its QE2 program and the price of gasoline spiking upward, there was widespread fear that we were in for a bout of uncontrolled inflation. The best long-term measure for where the smart money think inflation is headed is the spread between what Treasury bonds are returning and what the Treasury's inflation-protected bonds, or TIPS, are returning. That figure peaked this year in April at 2.67 percent - meaning that investors expected inflation to average 2.67 percent over the next ten years.
As QE2 has come to a close, and as gas prices have drifted back downward, inflation expectations moderated. The TIPS spread dropped all the way to 2.14 percent in May. But it has started creeping back up lately, and by the end of June it was trading at around 2.4 percent.
Except for a plunge in early 2009, the TIPS spread has been fairly consistent at around 2.5 percent since 2004. It looks like it's going to stay in that range for a while.
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