Consumer Price Index Falls - I-Bond Ramifications

[jeffrey]

The November numbers show the Consumer Price Index (CPI) fell 0.6% which was the the biggest monthly decrease since 1949. The decrease was mainly due to a steep drop in gasoline prices. The “core CPI,” which excludes food and energy prices (which are often volatile), rose 0.2%. This was the same number that was recorded in October and in line with most experts had forecasted.

While most people don't look at these CPI numbers other than in passing, for those who are investing or thinking of investing in I-bonds, these numbers have a profound affect on your investment. Even though the next adjustment to the I-bond rate isn't until May 2006, the November numbers make it likely that the yield from May on will be much lower than the current 6.73%.




I-bonds must be held for a minimum of one year, so it's important to look at the rate for the current 6 months and try to predict what will happen in the following 6 months. Since a portion of the rate is tied to inflation through the CPI-U (for urban areas), the CPI announcements can be a good indicator of what will happen to the I-bond.

For more information on the I-bond, you can visit our forums and I-BondRate for historical data.