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CPI-U Number For January And Impact On I-Bond Rates

Steve58
  |     |   459 posts since 2018

The CPI-U numbers, which defines the inflation rate for I bonds, for January came in at 0.545% month over month from the December number, which is 225% of the pre-pandemic average for January. The 9 years pre-pandemic average for January was 0.240%.

The last 2 months of this I-bond period is typically the highest 2 months of inflationary data for a calendar year (0.417%, 0.445%) based on pre-pandemic averages for those months.

If the last 2 months revert to the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 2.14%.

If the last 2 months is 150% of the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 3.01%.

If the last 2 months is 200% of the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 3.88%.

If the last 2 months is 225% of the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 4.32%.

I am still guessing we will see the I-bond inflation rate to be well under 3% for the next release in May. I think the January 2024 number is a bit of an outlier just like it was in January 2023. The January - March 2023 numbers were 0.800%, 0.558%, 0.331% vs the pre-pandemic averages of 0.240%, 0.417%, 0.445%.

If not an outlier, then inflation is back with a vengeance and they won’t drop rates any time soon (except right before the election to juice the big guy’s chances).

Steve

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w00d00w
  |     |   360 posts since 2012
after the most recent CPI report, the I Bond variable rate finally turned positive to 0.40%. not sure when the rate was last lower than that with 2 months data to go. January 2020 was close at 0.48%...the annualized 6 month variable rate for that period ending with the March 2020 CPI-U ended up being 1.06%
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Steve58
  |     |   459 posts since 2018
The CPI-U numbers, which defines the inflation rate for I bonds, for February came in at 0.619%
month over month from the January number, which is 150% of the pre-pandemic average for February. The 9 years pre-pandemic average for January was 0.240%.

The last month of this I-bond period is typically the highest month of inflationary data for a calendar year (0.445%) based on pre-pandemic averages for that month.

If the last month reverts to the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 2.55%.

If the last month is 125% of the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 2.77%.

If the last 2 months is 150% of the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 3.00%.

If the last 2 months is 200% of the pre-pandemic 9 year average rate, then the I-bond inflation component comes to 3.44%.

I am still guessing we will see the I-bond inflation rate to be under 3% for the next release in May.

Steve
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2
w00d00w
  |     |   360 posts since 2012
will be interesting to see what is done with the I Bond fixed rate at the next rate reset. the current fixed rate of 1.3% is well below the market's 30 year TIPS real rate of 2.1%
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2
CuriousDave
  |     |   233 posts since 2018
Do you have an estimate for the May 1 fixed rate component ?
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2
w00d00w
  |     |   360 posts since 2012
Here's one educated guess from a retired financial reporter on what the fixed rate component will be, as of about 2 weeks ago:
https://tipswatch.com/2024/02/26/lets-check-in-on-the-i-bonds-next-fixed-rate/
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2


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