Series I Bonds & CPI Inflation Update
Series I Bonds & CPI Inflation Update
Headline CPI +3.5% :: Core CPI 3.8%
SERIES I SAVINGS BONDS UPDATE
The next Series I bond inflation adjustment will take effect on Wednesday, May 1st 2024. The inflation rate is determined by the realized change in CPI between the six months from September 2023 through March 2024. The new rate of change during these six months is 1.48% semi-annual, or 2.96% annualized. Given this, the upcoming May 1st inflation adjustment will be lower than the current Series I bond semi-annual inflation rate of 1.97% (3.94% annualized). If you are considering purchasing I bonds this year, we recommend buying them before the end of April to lock in the current 3.94% CPI rate for the initial six months of ownership.
A new Series I bond fixed rate also takes effect on May 1st, and we expect the fixed rate to remain unchanged at the current 1.30% rate. The real yield on five-year TIPS is currently 2.06%, a bit higher than the Series I bond fixed rate. In the past, the Treasury has set the I bond fixed rate slightly lower than the five-year TIPS real yield. Looking at Series I bond history, the five-year TIPS real yield was 2.06% in May 2007, and the Treasury set the I bond fixed rate at 1.3%.
We expect the upcoming May 1st Series I Savings Bond rate to result in a composite rate near 4.25%. The new rate is comprised of a 1.3% fixed rate and a 2.96% inflation adjustment. This new composite rate will be roughly 1% lower than the current 5.27% I bond rate.
CONSUMER PRICE INDEX (CPI) | MARCH 2024 UPDATE
Today’s March CPI inflation report shows that the pace of core inflation has stabilized around 3.8% year over year. The core CPI inflation rate peaked at 6.6% year over year in September 2022 and decelerated to 3.75% last month. The previous three year-over-year CPI figures have been 3.86% in January, 3.75% in February, and 3.80% in March. We believe the Fed is unlikely to lower the federal funds rate with the core CPI inflation rate well above 3%.
Headline CPI:
+0.4% seasonally adjusted in March, following +0.4% in February
+3.5% year-over-year
Core CPI: (excludes food and energy)
+0.4% seasonally adjusted in March, following +0.4% in February
+3.8% year-over-year
Median and 16% trimmed-mean CPI from Cleveland Fed:
Median +0.4% in March and +5.5% YoY
16% trimmed-mean +0.3% in March and +4.3% YoY
In case you missed it, here is our April 2024 Model Portfolio Update.