August Inflation Rises 0.2%: What It Means For Social Security, TIPS, And I Bonds

Sep. 13, 2018 10:25 AM ETTIP, VTIP, SCHP, STIP, SPIP, STPZ, LTPZ, TIPZ, TIPX, TDTF, TDTT, PBTP10 Comments
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Summary

  • August headline inflation came in below the consensus for the month and year. Core inflation was also below the consensus.
  • The current trend in CPI-W would place the 2019 Social Security cost-of-living increase in a range of 2.7% to 3.0%, with one month remaining for the calculation.
  • Non-seasonally adjusted inflation increased just 0.06% in August, after a 0.01% increase in July. What does this mean for TIPS and I Bonds?

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, headline inflation rose 2.7%.

The increase of 0.2% was below the consensus estimate of 0.3%, and the year-over-year number also dipped below the consensus of 2.8%. So this certainly isn't an upside surprise, and the markets should react calmly.

Energy and shelter costs were the main contributors to rising costs in August, the BLS reported. Gasoline prices were up 3.0% for the month, and are up 20.3% over the last 12 months. The shelter index increased 0.3% in August, the same increase as in July. Rents were up 0.4%. Food prices were up a moderate 0.1%.

Core inflation - which removes food and energy - rose 0.1% in August, and is up 2.2% over the last 12 months. Both of of those numbers were below the consensus estimates of 0.2% and 2.3%.

So today's inflation report continues to point to moderate inflation that seems to be stabilizing in a range between 2.2% and 2.8% a year. This chart, showing annual inflation numbers over the past year, shows the stead rise through mid-summer and then the dip in August:

Year or year inflatoinWhat this means for Social Security

The 2019 cost-of-living increase for Social Security will be determined by the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over the months of July, August and September. (I explained this process in an August 1 article.)

The BLS set the CPI-W index for August at 246.336, 2.9% higher than the index for August 2017. But that annual increase is not totally relevant to the 2019 COLA calculation, because of the three-month average calculation. At this point, with one month remaining, the Social Security COLA

This article was written by

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I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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