Inflation is --- A Letter to a 10 year old.

Here is something interesting from the Foundation of Economic Education. It is response to a query from a 10 year old.

Inflation is ...

Why are real rates rising?

Greg Mankiw asks why are real rate rising. He shows a graph of 5-Year Treasure Inflation Index Security and notes that given the widespread fear in financial markets, we ought to see a flight to quality, with the resulting effect that the price of safe assets will be up and their yields down. This is what we see in short term Treasury Bills but not in the yield on 5-year inflation adjusted government bonds. His graph obviously shows that the yields have been rising but a look at the 5 year Treasury Constant Maturity Rate will show that rates are indeed falling. See below.