The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. But over the last 12 months, overall inflation rose just 0.1%.
While higher gasoline prices (up 3.4% in the month) were a big factor in June’s increase, inflation also perked up in other sectors: Food at home, up 0.4%; shelter, up 0.3%; and transportation services, up 0.4%. Inflation was moderated by declines in apparel prices, down 0.1%, and used cars and trucks, down 0.4%.
Core inflation – which strips out food and energy – was up 0.2% in June and 1.8% over the last 12 months, indicating that inflation remains in the ‘moderate’ zone.
Holders of Treasury Inflation-Protected Securities and I Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust the principal balance of TIPS and set the future interest rate on I Bonds. In June, the CPI-U inflation index rose to 238.638, up 0.35% from May’s number.
This is significant. I Bonds purchased today carry a fixed rate of 0.0% and an annualized inflation-adjusted rate of -1.60%, resulting in a composite rate of 0.0%, the lowest it can go. But the inflation-adjusted rate will be re-set November 1, based on non-seasonally adjusted inflation from March to September. So far, from March to June, inflation has increased 1.06%, which would result in an annualized rate of 2.12%. And we have three months to go. I Bonds could be a buy in November and December.
I have updated my Tracking Inflation and I Bonds page to reflect these new numbers.
The news is also better for holders of TIPS, who have seen 12-month inflation rates dip to zero or below zero since January 2015. That is turning around. Today’s 0.35% inflation number will be added to TIPS balances through August 31. That is on top of the 0.51% increase in May and 0.20% hike in April. At least the trend is finally up.
Here is the overall trend for seasonally-adjusted inflation over the last 12 months, clearly showing the upward movement, primarily caused by rising gasoline prices: