The U.S. Labor Department reported today that the Consumer Price Index rose 0.3% in March, mostly because of higher food and gas prices. In 12 months that ended in February, prices rose 2.7 percent. That’s below last year’s peak year-over-year rate of 3.9 percent.
From the Associated Press report:
Core prices have risen 2.3 percent in the 12 months that ended in February, close to the Federal Reserve’s inflation target of 2 percent. … Fed chairman Ben Bernanke has acknowledged that rising gas prices have boosted inflation. But he has maintained that the increases are likely temporary.
“Inflation is going to be slowly decelerating as the energy price impulse that we’ve seen starts to fade,” said Michael Carey, the chief economist for North America at Credit Agricole CIB in New York, who correctly forecast the rise in prices. “The Fed is in wait and see mode. Inflation is not driving policy. They are more concerned about economic growth and the labor market.”
Holders of TIPS get the benefit of a 0.3% increase in principal for all issues. But it does appear that inflation is slowing from the plus-3% annual rate of recent months.
This CPI-U release also allows us to calculate the new yield on I-Bonds: 2.21%. Much better than it was looking just a month or two ago!
I have also seen the new rate as 2.20%.
Mixed signals, if you use the 10-year TIPS as a measure of breakeven rate. Right now, 10-year TIPS are selling on the secondary market at -0.296% (for the TIPS maturing 2022 Jan 15).
A traditional 10-year Treasury is paying 2.00%, so that sets the breakeven rate at 2.296%.
That is down a bit since I wrote the post, Beware of the ‘breakeven rate’, but on the other hand, inflation has been slacking off a bit.
Over 10 years, I still theorize (my dumb guess) that inflation is going to run more than 2.29%. I would guess we would see rates nearer to 3% over 10 years. But that is my dumb guess.
How has the breakeven inflation rate been faring lately?