Treasury bills and inflation.

When inflation is high, lenders require higher interest rates to make up for the loss of purchasing power of their money while it is loaned out. Table 10.1 displays the return of six-month Treasury bills (annualized) and the rate of inflation as measured by the change in the government’s Consumer Price Index in the same year.⁵ An inflation rate of 5% means that the same set of goods and services costs 5% more. The data cover 55 years, from 1958 to 2013. Figure 10.9 is a scatterplot of these data. Figure 10.10 shows Excel regression output for predicting T-bill return from inflation rate. Exercises 10.6 through 10.8 ask you to use this information.