Series I Bonds & CPI Inflation Update
Headline CPI +2.4% :: Core CPI 3.3%
SERIES I SAVINGS BONDS UPDATE
The next Series I bond inflation adjustment will take effect on Friday, November 1st, 2024. The inflation rate is determined by the realized change in CPI between the six months from March 2024 through September 2024. The new rate of change during these six months is 0.95% semi-annual, or 1.90% annualized. Given this, the upcoming November 1st inflation adjustment will be quite a bit lower than the current Series I bond semi-annual inflation rate of 1.48% (2.96% annualized). If you are considering purchasing I bonds this year, we recommend buying them before the end of October to lock in the current 2.96% CPI rate for the initial six months of ownership.
A new Series I bond fixed rate also takes effect on November 1st, and we expect the fixed rate to fall slightly from the current 1.30% rate. The real yield on five-year TIPS is currently 1.65%, about 60 basis points lower than it was six months ago. In the past, the Treasury has set the I bond fixed rate lower than the five-year TIPS real yield. We expect the Treasury will lower the fixed rate by approximately 20 basis points to 1.10%.
We expect the upcoming November 1st Series I Savings Bond rate to result in a composite rate near 3.00%. The new rate is comprised of a 1.1% fixed rate and a 1.90% inflation adjustment. This new composite rate will be roughly 1.3% lower than the current 4.28% I bond rate, which you can still purchase through the end of October.
CONSUMER PRICE INDEX (CPI) | SEPTEMBER 2024
Today’s September CPI inflation report shows that the pace of core inflation rebounded to 3.31% after bottoming at 3.17% in July. This is not welcome news to FOMC members, who just voted last month to lower the fed funds rate by 50 basis points. There is no other way to say it: A 3.3% core CPI rate is not acceptable given the Fed’s 2% inflation target. More importantly, the year-over-year inflation rate in September is higher than the June, July, and August figures, meaning the deceleration in core CPI has stalled.
Headline CPI:
+0.2% seasonally adjusted in September, following +0.2% in August
+2.4% year-over-year
Core CPI: (excludes food and energy)
+0.3% seasonally adjusted in September, following +0.3% in August
+3.3% year-over-year
Median and 16% trimmed-mean CPI from Cleveland Fed:
Median +0.3% in September and +4.1% YoY
16% trimmed-mean +0.3% in September and +3.2% YoY
In case you missed it, here is our October 2024 Model Portfolio Update.
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