August CPI-U Rate

The August CPI-U value increased to 218.312 over July’s value of 218.011.

 

March	April	May	June	July	Aug.	Sept.
217.631	218.009	218.178	217.965	218.011	218.312

 

With only one month remaining for the November I Bond rate to be determined, the inflation for this period remains very low. If the calculation was based on today’s values, the CPI-U increase would be only 0.31%. If the fixed rate of 0.2% continued, the combined I Bond rate would be a mere 0.82%.

The CPI-U increased for last September through March resulted in a 0.77% CPI-U linked rate. It seems unlikely that the November rate will be higher than today’s 1.74% I Bond.

CPI-U August 2010
I Bond Rates

July CPI-U Value

The CPI-U value for July rose ever so slightly from June’s value of 217.965 to 218.011.

 

March	April	May	June	July	Aug.	Sept.
217.631	218.009	218.178	217.965	218.011

 

For those of you interested in following the CPI-U, I recently launched CPI-U.info, which has all historical CPI-U values, as well as charts and statistics for each year.

June CPI-U Update

The June CPI-U value dropped slightly from May’s value of 218.178 down to 217.965.

The CPI-U increase after 3 months has only been about 0.15% with only 3 months remaining before the next I Bond inflation rate can be calculated.

March	April	May	June	July	Aug.	Sept.
217.631	218.009	218.178	217.965

April and May CPI-U Values

The next I Bond rate will be based on the change in CPI-U between March and September. The value rose to 218.009 in April and again in May up to 218.178.

 

Mar.	Apr.	May.	Jun.	Jul.	Aug.	Sep.
217.631	218.009	218.178

New I-Bond Rate for May 1, 2010: 1.74%

The new I-Bond rate has been released for May 1, 2010 through October 31, 2010.

With a fixed rate of 0.20%, the new composite rate will be 1.74%.

We previously knew that the CPI-U increase of 0.77% would result in a variable rate of 1.54%. Now that the fixed rate of 0.20%, the composite rate is 1.54% + 0.20% = 1.74%.

I-Bonds that have already been issued will change to the new variable rate on the 6-month anniversary of the issue month of the bond.

What will the next i-bond rate be?

With the CPI-U linked rate of .77% set for the May-October I-Bond release, it is now time to speculate what the fixed rate value could be. The fixed rate is set by an unknown method, meaning we won’t know until it is announced May 1.

The current fixed rate is 0.30%, which is the 4th consecutive sub-1% rate. With a weak economy, it would make sense that the next fixed rate will remain low to encourage people to spend rather than save, so my guess is that the next fixed rate will be in the .50%-.70% range. My last guess was for a 1.0% fixed rate, which was a full 0.70% difference from the actual 0.30% rate that was announced.

Theoretical Fixed Rate	Composite Rate
0.00%	1.54
0.10%	1.64
0.20%	1.74
0.30%	1.84
0.40%	1.94
0.50%	2.04
0.60%	2.14
0.70%	2.25
0.80%	2.35
0.90%	2.45
1.00%	2.55
1.10%	2.65
1.20%	2.75
1.30%	2.85
1.40%	2.95

 

With the relatively low rate of inflation over the past 6 months, it is unlikely i-bonds will break the 3.0% mark.

Next Composite Rate for Existing I-Bonds starting May 1, 2010.

Given the new CPI-U linked rate of .77%, we can now determine the composite rate for currently issued I-Bonds. An I-Bond purchased before May 1 will have a fixed rate of 0.30% and will earn the current composite rate of 3.36% until October 1, when it will switch to 1.84%.

 

Fixed Rate	Composite Rate
0.00%	1.54%
0.10%	1.64%
0.30%	1.84%
0.70%	2.25%
1.00%	2.55%
1.10%	2.65%
1.20%	2.75%
1.30%	2.85%
1.40%	2.95%
1.60%	3.15%
2.00%	3.56%
3.00%	4.56%
3.30%	4.87%
3.40%	4.97%
3.60%	5.17%