Next I bond rate could exceed 5%
For the current six-month I bond rate-setting period, inflation is running at 3.85%, as compared to the 3.58% rate of the last rate-setting period, according to today's Consumer Price Index announcement.
If this rate continues in the final month of the rate setting period, the I bond rate announced on November 1 will be over 5%, as compared to the current 4.80%.
I'll publish more exact numbers here in mid-October.
Meanwhile, total investments in Savings Bonds continue to be heavily weighted towards I bonds - 63% in August - but dwindling on a year-over-year basis. Total sales this fiscal year are on track to be the lowest in three and perhaps four years.
Savings Bond Alert readers can see an online updated monthly sales chart at Book Note 2-1.
posted by Tom Adams at 9/15/2005 12:56:00 PM
10 comments
10 Comments:
Could you please explain how you get your numbers from the raw CPI-U numbers released today?
The I bond inflation rate component is calculated from the raw CPI-U numbers in March and September. We don't know the September number yet, but if you annualize the difference between the March and August numbers, you get 3.85%.
Any guesses about the fixed rate?
I have a feeling it may remain at 1.2%...
The fixed rates for 5-year TIPS (Treasury Inflation Protected Securities - the big boy version of I bonds) have been going up. As long as they don't suddenly head back down, the fixed portion will be no lower than the current 1.2% and could even be higher.
can you double check your prediction, it must be a big mistake,this the monly increase of the CPI-U:
Apr. May Jun July Aug.
0.5 -0.1 0.0 0.5 0.5
assume Sept. is flat (0.0),
that will be 1.4%x2 = 2.8% + fixed rate (1.0%) = 3.8%
Obviously the September inflation rate will make a big difference in the final number. But the March index was 193.30 and August index was 196.40. The math goes like this:
196.40-193.30 = 3.1 points change
3.1 / 5 months = .62 per month
.62 * 12 = 7.44 (annualize)
7.44 / 193.30 = 3.85% inflation rate
1.20% fixed + 3.85% = 5.05%
you overcounted one month in the calculation.
The difference between our calculations is that yours assumes September's rate will be 0% and mine assumes it will be the same as the rate during the April - August period.
Which month do you think I counted twice?
The CPI number came out this morning and it was a 1.20% increase for the month of Sept. I figure the annualized inflation rate for the past 6 months to be 5.65%. If the current fixed rate on I bonds stays the same at 1.20% that would be a rate of 6.85% for the next 6 months on I bonds. That's a serious return in today's fixed income environment. Is my math correct on this calculation?
See my post this morning at http://savings-bonds-alert.blogspot.com/2005/10/inflation-jumps-new-i-bonds-could.html
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