Small Rise in CPI Portends Low I-Bond Rate

Update (2 May 2006):Russ Wiles of the Arizona Republic reports that the I-bond rate has come in at 2.4%, as the fixed-rate portion of the I-bond's yield was increased from 1.0 to 1.4%.

Earlier this week, the Bureau of Labor Statistics issued the March 2006 Consumer Price Index for Urban Consumers (CPI-U). Using Political Calculations' tool for predicting the future I-bond rates, we find that the small increase in this inflation index in the six months between September 2005 and March 2006, is likely to result in the rate of the upcoming I-bond being set between 1.8% and 2.2%. If the Treasury department maintains the fixed-rate portion of the I-bond at 1.0%, the rate will fall in the middle of this range at 2.0%.

But, don't take our word for it. The tool below is set up to do the math for you!

I-Bond Data
Input Data	Values
Fixed Rate (Low End) for I-Bond (%)
Fixed Rate (High End) for I-Bond (%)
CPI-U for Most Recent of March or September
CPI-U for Next Most Recent of March or September

Predicted I-Bond Rates of Return
Calculated Results	Values
Low End of Range (%)
High End of Range (%)
Middle of Range (%)

The 2.0% rate corresponds with the current fixed rate portion of the I-bond being set at 1.0%.

The new I-bond rate also reflects a sharp decrease from the previous I-bond rate of 6.73%. Given that current 6-month Treasury bond yield, which matures in October 2006, is coming in at 4.72%, the new rate looks especially unappealing.

MyMoneyBlog , who follows the I-bond much more closely than we do here at Political Calculations, offers the following speculation on what the U.S. Treasury might do, and when, to make the I-bond more attractive:

I would probably recommend waiting until May, the government might jack up the fixed rate sky-high, which could make I-Bonds a possibly good long-term investment. Probably still not a very good short-term investment.

MyMoneyBlog is also predicting that the fixed-rate portion of the I-bond will be increased to be in the range of 1.1-1.4%, so be sure to re-run the prediction tool with these figures!