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November Inflation Report And Future I Bond Rate

Saturday, December 15, 2012 - 7:51 AM
The Labor Department released November CPI numbers yesterday. In summary, inflation as defined by the CPI remains in check and won't be a concern for the Fed. The seasonally adjusted CPI-U fell 0.3% last month from October primarily due to falling gas prices. The core CPI (less food and energy) increased 0.1%. According to Calculated Risk Blog:
This was below the consensus forecast of a 0.2% decrease for CPI, and below the consensus for a 0.2% increase in core CPI.

The decrease in CPI was mostly due to the recent decline in gasoline prices. On a year-over-year basis, CPI is up 1.8 percent, and core CPI is up 1.9 percent. Both below the Fed's target.

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The low CPI numbers are not good for future I Bond inflation rates. According to the Savings Bond Advisor:
The Series I bond inflation component is based on the difference between the March and September levels of the CPI-U. The September level of 231.407 will be the base for the next rate announcement. If inflation for all six months of the period matches the rate during the first two months, the next I bond inflation component would be zero.

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