Why is there a discrepancy between current inflation rate and I bond rate in the US?

Question

According to https://www.rateinflation.com/inflation-rate/usa-inflation-rate/, the November 2022 inflation rate is 7.11%, but the I Bond rate according to Treasury Direct is 6.89% (from November 2022 to April 2023). I know that there is a positive correlation between inflation rate and I bond rate, but why could be factors that could contribute to the discrepancy of one being 7.11% (I've compared multiple resources and 7.1% or 7.11% seem to be the one reported) and another being 6.89%?

Answer 1

The "inflation rate" for the i-bond is based on the past 6 months of CPI values, not a whole year.

Answer 2

It takes time to compute inflation. That's why the reset inflation rate in May and November does not use the values for May and November inflation (it is not yet available when the rate is announced). Conventionally, percentage values are computed as year over year YoY), meaning Nov21 - Nov22 in your example. Also, there are several inflation series available; seasonally adjusted or unadjusted, including or excluding volatile products like food and energy and the like. Details about the design of inflation indices would be a seperate (complex) question.

In any case, what is used to compute inflation for I bonds is this series, found in the section where it reads

Finally, the next grouping of data shows actually CPI figures from 1913 to present.

All Urban Consumers – (CPI-U) 1913-2022*

The computation is like this

For 1st of Nov, the inflation values (not percentage values, but the actual index value) for March to September are used because it is semi-annual and as mentioned above, the latest values are not available yet: 2968.08/2875.04 =3.24%, because it is rounded to two decimal places).

That is the inflation rate I showed in my other answer.

This answer replicates the calculation of the current value on the website of TreasuryDirect.

This answer explains why the formula

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

is designed like that.