July Inflation: Bad News For TIPS, I Bonds And Social Security Benefits

Summary

  • Headline inflation rose 0.1% in July, missing the consensus forecast of 0.2% and continuing a trend of downside misses.
  • Non-seasonally adjusted CPI-U declined 0.07% in July, which will lower principal balances for TIPS in August and tamper the November 1 variable rate for the I Bond.
  • CPI-W, which is used to set Social Security benefits, also fell in July, which makes the Social Security Administration’s projection of a 2.2% benefits increase look faulty.

Read my full analysis on SeekingAlpha.com

In addition, I have updated my Inflation and I Bonds page with these new numbers.

And here are the new TIPS inflation indexes for September.

Posted in Investing in TIPS | 2 Comments

Why Would Anyone Buy Inflation-Protected Investments?

Summary

  • The idea: Push inflation-protected money into the future, when you will need it in retirement.
  • Both I Bonds and TIPS are super safe investments that can be purchased with zero commissions and fees.
  • The only risk in purchasing ‘inflation protection’ is that you will receive a slightly lower return than with nominal investments. The cost is very low.

After getting together with friends from my college days, I suddenly had a moment when I realized that most people – maybe 95% of Americans – have no idea what inflation-protected investments are or how they could fit into a portfolio.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | 3 Comments

The Formula: How Much Will Social Security Benefits Increase In 2018?

Summary

  • News media widely reported that a 2.2% increase in Social Security benefits is likely in January 2018.
  • How is the COLA determined and how could anyone project it in early July?
  • We need three months of data – inflation for July, August and September – to know the answer.

My wife and I were on vacation last week, eating breakfast at an Interstate hotel in southern Wisconsin. She read me a line from a USA Today story: “Social Security benefits projected to rise 2.2% in 2018.”

“What?” I nearly spit out my artificially-processed scrambled eggs. “How can that be? Inflation is running at 1.6% and we’re only halfway into the year. Wouldn’t this number come out in October or December? How can it be 2.2%?”

Read my full analysis on SeekingAlpha.com

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10-Year TIPS Auctions With A Real Yield Of 0.489%

Summary

  • The coupon rate was set at 0.375%, so buyers got this TIPS at a discount.
  • The inflation breakeven rate came in at 1.76%, which is attractive.
  • Market reaction to the auction is trending negative, with yields rising and the TIP ETF falling after the auction’s close.

Read my full analysis on SeekingAlpha.com

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New 10-Year TIPS Will Auction July 20; Is It Worth A Look?

Summary

  • This new TIPS could have the highest real yield since January 2016, but┬ákeep an eye on yield trends – they have been falling.
  • The current inflation breakeven rate of 1.78% makes this TIPS attractive versus nominal Treasurys.
  • A reason to celebrate? Possibly.

I’m sorry — I have been on vacation this week in rural Wisconsin and had extremely limited Internet! I wrote an article on Sunday for SeekingAlpha.com, but once it was published I was in the dead zone. As of the close Tuesday, it was looking like this new TIPS could go off at 0.50% or lower, and I am losing interest … Keep an eye out, though.

Read my full analysis on SeekingAlpha.com

 

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U.S. Inflation Was Unchanged In June, Again Below Expectations

Summary

  • Both headline and core numbers for year-over-year inflation have fallen well below the Federal Reserve’s 2.0% target.
  • Falling gasoline prices again accounted for the low June number. Used vehicle prices also have been falling.
  • What does this mean for investors in TIPS and I Bonds? Possibly lower real yields and a short-term period of mild inflation.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | 1 Comment

Does TIPS’ Inflation Break-Even Rate Accurately Predict Future Inflation?

Summary

  • The break-even rate details investors’ inflation expectations. It is not a predictor of future inflation.
  • The trend since 1997 seems to indicate that investors underestimate future inflation. But TIPS have underperformed recently.
  • Rising real yields and still-low inflation break-evens mean that TIPS are getting more attractive as an investment in 2017.

In the 11 years of TIPS auctions with completed 10-year maturities, inflation was underestimated in seven of those years, and overestimated in four of those years.

Read my full analysis on SeekingAlpha.com

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