I was away from my computer last week, and updating a blog with an iPad is pretty much hell on Earth. So, I’m catching up.
On Thursday, the same day as the 30-year TIPS auction, the U.S. announced that ‘headline’ inflation (CPI-U, the one that matters to holders of TIPS and I Bonds) was zero in January. Over the last 12 months ending in January, headline inflation has been running just 1.6%, giving recent buyers of TIPS a double whammy — yields negative to inflation combined with very low inflation.
As this chart shows, holders of TIPS have received zero in inflation adjustment to principal since October:
Excluding the volatile food and energy categories, core inflation rose 0.3 percent in January. Core prices have risen 1.9 percent in the past year, below the Fed’s inflation target of ‘less than’ 2.5%. This could indicate that the Fed will feel free to continue its aggressive buying of Treasurys. From the Associated Press report:
“As long as inflation readings remain relatively constrained and inflation expectations do not get out of control, the (Fed) has plenty of runway to continue its program,” Dan Greenhaus, chief global strategist at brokerage BTIG, said in a note to clients.
February CPI, however, is likely to tick upward because of sharply rising gas prices.
Treasury Inflation-Protected Securities 
The Chinese economy is gaining strength. That will drive up the price of building materials and various commodities. Mild will turn wild. Investors will see the need for inflation protection and drive up the “price” of these TIPS.
Heretofore, I have only purchased I-bonds. I need “protection” for hundreds of thousands of dollars of my portfolio. I am a little shy about biting on the 10 year TIPS offering next week.
BLS “headline inflation” is the seasonally adjusted CPI-U. That is _not_ the one that we care about for TIPS. The non-seasonally-adjusted CPI-U figure for December (released 1/16/2013) was 229.601, and the figure for January (released last week) was 230.280. That is a 3.6% annual rate of increase. Since the same seasonal adjustment for January is applied at both ends, use of the “headline” figure for the 12-month rate of increase is OK.