PCE inflation still hot

Investment Analysis Clubs Macro Economic Trends and Risks
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Personal Consumption Expenditures Price Index

Change From Month One Year Ago
July 2026
June 2026
May 2026
April 2026
Inflation, year-over-year percent change
Month CPI Core CPI PCE Core PCE Updated
August 2026 3.37 2.38 3.79 3.40 08/26
Note: If the cell is blank, it implies that the actual data corresponding to the month for that inflation measure have already been released.
Quarterly annualized percent change
Quarter CPI Core CPI PCE Core PCE Updated
2026:Q3 1.03 1.91 2.35 3.00 08/26

Note: If the cell is blank, it implies that the actual data corresponding to the quarter for that inflation measure have already been released.

  • Year: Quarter

    Source: Federal Reserve Bank of Cleveland calculations based on data from Bureau of Labor Statistics, Bureau of Economic Analysis, Energy Information Administration, Financial Times, and Haver Analytics

**Third-Quarter GDPNow Estimate for 2026:Q3, Updated: August 26, 2026 is 4.6%.

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

Forget about a fed funds rate cut in 2026. And the longer-duration yields are rising along with junk bond spreads on top of the Treasury yields.

Highly indebted companies will face a double crunch from higher labor/ material costs and higher interest. This can lead to both a liquidity crisis (not having enough cash on hand to pay expenses, including interest) and a solvency crisis (bankruptcy which causes restructuring and loss to lenders).

As legacy zero-interest debt matures over the next two years, private equity managers will eventually be forced to choose between marking down asset values and selling at a discount to clear the backlog, or letting distressed assets fall into restructurings managed by private credit lenders.

This is a messy situation that risk-averse investors will do well to avoid. Short-duration and laddered Treasuries/ CDs and cash-rich mega-cap stocks with minimal net debt, strong pricing power, and organic cash-flow generation are the low-risk way to invest.

Wendy

Wendy

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The future trajectory of inflation is hard to forecast because it depends so much on unpredictable govt. action. In my case I try to invest only in securities that will benefit from inflation long term, because the universal existence of fiat currencies guarantees that the foreseeable future will be inflationary (see history), so I believe that inflation protection is appropriate under all circumstances.

Due to the almost-zero treasury rates of a few years ago, a unique situation has occurred with some long-dated TIPS. The way the market prices them is not really appropriate IMO and has never been so. Anyway, there are a very few TIPS issues that have become ridiculously cheap and have become pretty much the ultimate inflation hedge, as long as you think the US treasury will not collapse for some time. Specifically, the most extreme issue is Cusip# 912810TE8, and that is the one I backed up the truck to and bought a bundle of. It is now trading at a 50% discount to its equity value just because its coupon rate (One eighth of one percent) is so low. This results in a YTM of about 2.8% plus twice the inflation rate annually, compounding. If inflation runs at its long term average of, say, 3%, that gives you an 8.8% mostly-compounding yield, composed of the coupon, the discount drawdown over time to maturity, and the inflation adjustment from year to year. The coupon income is negligible, but the annual inflation adjustment is real, as is the redemption value of twice what you paid.

This is a super-simple investment to analyze: It is quite volatile but, for a young long-term investor who can wait till the maturity date for the final whopping payout if the market continues to value it cheaply between now and then, it is extremely conservative at the same time being an extremely lucrative safe investment. If inflation gets into a terminal spiral then these bonds will pay out beyond your wildest dreams until the government goes bust and defaults on them.

The “sweet spot” scenario will occur if the govt. fights inflation for a long time without actually vanquishing it but holding off a terminal currency collapse and general default. In such a scenario, an allocation to these bonds will make you rich.

A bonanza scenario occurs if there is high inflation for a few years and then the govt. cleans up their act and prices come back under control. After that happens you get a small yield for the rest of the life of the bond, on a wildly increased equity value that makes the return on your original investment just fabulous. For example, four years of ten percent inflation would more than double the equity value per bond so that you would then be getting more than 5.6 percent YTM plus four times the inflation rate on your original investment. At that time, if inflation was down to target at 2% you would be getting 5.6% plus 4 times 2%, or 13.6% on your original investment (11.6% real) compounding annually.

Not bad for a treasury bond.

If however the govt. just keeps inflating wildly and only lasts a very few years before collapsing then you might be lucky to break even.

Ed.

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@EddieLuck I decided not to buy this issue.

  1. The so-called “phantom interest” - the increase in principal due to inflation - is taxable every year even though it isn’t paid to the investor until the bond matures. Unless bought in a tax-deferred retirement account, the negligible coupon interest would not cover the tax so the bond would be cash-flow negative.

  2. I don’t understand where you get the statement " twice the inflation rate annually, compounding." The coupon of a TIPS bond is fixed. This coupon rate is applied to the principal of the bond which is adjusted upward with the CPI-U. There is no doubling of the inflation rate.

Research the details before backing up the truck.

Wendy

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Hi, Wendy. I did research the details.

You are right that the benefits of these TIPS are greatly reduced in a taxable account. I should have mentioned that, although it does not conflict with my argument.

Your second point is wrong though. If you buy a TIPS at half price, the annual inflation adjustment is doubled for you as a percentage rate because it is applied to a principal that is twice what you paid, just as if you bought a regular treasury bond yielding 5% at a 50% discount you would receive 10% annual interest on your investment.

These TIPS are a wonderful way to protect your investments against inflation. For instance, if you buy one at a 50% discount, if

The compounding only occurs with the inflation adjustments and the consequent coupon payment amounts.

In a message dated 8/28/2026 9:11:57 AM Pacific Daylight Time, admin@discussion.fool.com writes:

5

Correction: (I got distracted) if you buy one at a 50% discount, you can buy a regular bond too and the interest on it will be protected against all inflation by the doubling of the inflation adjustment on your TIPS. So for instance you can buy an A rated corporate bond at 6% and together with a half price TIPS yielding 2.8% plus the inflation adjustment your real yield on the deal would be 6% plus 2.8% divided by two, or 4.4%.

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There is no doubling of the inflation rate. The yield from the discount gets added to the yield from inflation, not multiplied. (There is a small multiplier effect that can be verified with a spreadsheet calculation, on the order of 2% times 3% = 0.06%.)

Yield = coupon + inflation + discount

=== math ===
Annualized return is:

PrincipalAtMaturity = ((1 + inflation)^years) * PrincipalWhenBought

CAGR = coupon + (PrincipalAtMaturity / PurchasePrice)^(1/years) -1

For example, a $1000 2052 TIPS now has a principal of $1200. Ask Price is 49.19, and so PurchasePrice is $590. If inflation averages 2.3%, the 2052 principal will be $2167. CAGR is:

CAGR = 0.125% + (2167/590)^(1/26) - 1 = 5.3%

Yield = 0.125 coupon + 2.3 inflation + 2.875 discount

This calculation can be done for various inflation rates, and the real CAGR stays around 3.0%:

CPI_rate  CAGR  real_CAGR
  -1.0%   1.9%    2.9%
  0.0%    2.9%    2.9%
  1.0%    3.9%    2.9%
  2.3%    5.3%    3.0%
  3.0%    6.0%    3.0%
  4.0%    7.0%    3.0%

CUSIP 912810TE8
Series TIPS of February 2052
Interest Rate 0.125000%
Security Term 30-Year
Original Issue Date 2/28/2022
Maturity Date 2/15/2052
Dated Date 2/15/2022
Reference CPI On Dated Date 278.375000

  Maturity   Coupon   Bid   Asked  Yield*  Accrued principal
2052 Feb 15  0.125   49.14  49.19  2.957         1200
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laffisloon, you and Wendy are right. Thank you so much and thank you Wendy for taking the time to help me see it. I have been struggling for weeks to understand why my reasoning made market pricing of TIPS seem so irrational, a view I have had ever since TIPS were invented. I had been misapplying the discount in my calculations. I shall adjust my portfolio accordingly. In my lifetime this is the fourth really significant error I have made in calculations and then acted on. Ha Ha Ha. Humbled again. This time, I will back up the truck again and unload some.

Good luck, Ed.

In a message dated 8/28/2026 6:12:22 PM Pacific Daylight Time, admin@discussion.fool.com writes:

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With your kind permission I would like to beat this dog to death. Thinking about what you have said I think you two and I are talking at cross-purposes because I have not made my case clearly enough.

When the TIPS are selling at a 50% discount, I get two TIPS for the cost of one at par. So on my basis cost I get the inflation adjustment on two TIPS plus the coupon on two TIPS plus the discount amortization on two TIPS. If I bought one at par I would get the inflation adjustment on one TIPS plus the coupon on one TIPS and no discount amortization. So my return on investment is more than doubled by the 50%-off sale price, because the coupon and the inflation adjustments are calculated on the nominal principal, or equity, of the bonds, not on the market price. The discount amortization is an added bonus.

Putting it another way, the inflation and coupon returns on a TIPS are the same whatever I pay for it as I think you are saying, but the return on my invested capital is doubled when I can get two for the price of one at par. Or, I am controlling the income on two TIPS with each $1,200. This was my premise. So if inflation is 5% on the principal I get 10% on my investment because I got two for the price of one.

Are we on the same page, or am I missing something?

Ed.

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I believe this is correct (not 100% sure, but think so).

If you buy a $100 par or face value TIPS trading at $50, the first inflation adjustment happens on the principal of $100.

So if inflation is 3% for 1 year, the inflation adjustment is $3.00 (3% of $100).

Suppose after 5 years the inflation-adjusted principal is $115. Then, after another 1 year of 3% inflation, say in year 6, the year 6 inflation adjustment is 3% of $115. So the inflation-adjustment is done on the adjusted principal.

Looks like a good observation. I was not aware of this or had not thought of this scenario.

Of course, 30 years is a long time to own a bond and a lot can happen in 30 years.

One thing to watch out for, I believe, is deflation. If we were to have deflation, the principal can get adjusted down, to a floor of the $100 par value (my understanding is the US Treasury will not adjust below par, but if the adjusted principal is above par, principal can get adjusted down if there is deflation, so you can potentially lose money this way).

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Yes, mostlylong, you have it. Buying at half price doubles the inflation payment on your cost basis, as well as the coupon payment percentage, and also adds the discount amortization as a bonus. I agree that the long term and the possibility of serious deflation are the main risks and both are serious risks because of the technical bankruptcy of our federal government. These particular TIPS are for protection and profit during inflationary times only. If the government beats inflation over the next couple of decades then they will not pay well at all. If a deflationary credit whirlpool destroys us then they are toast.

There is also a risk that our govt. might pull some kind of trick with our currency to cut off the debt spiral like they pulled in 1931 or 32 - I forget which year it was they bought all our gold and then immediately revalued the gold, screwing us all in the process.

However, only once in several hundred instances that I know of where a government got indebted like ours has that govt. kept up with its debts and eventually outgrown them or paid them off. It’s the human nature of politicians that get elected.. Debt overhangs like ours almost always end in collapse, currency crisis, runaway inflation, that sort of thing. Reinhard and Rogoff and Peter Bernholz have good books on the subject among many. In the past, the best hedges against all this have been precious metals, farmland, and real estate in that order, but these TIPS at this price leverage inflation in your favor., and compound better than the inflation itself. I would expect them to gain considerable value if inflation rises to mid-or high single digits again when people see the huge gains on them. That’s why they are unique and so exciting to me.

Of course, in most of these scenarios the TIPS will eventually expire worthless unless the actual collapse occurs after 2052 or if our govt. stops inflating.. They will have to be sold before the govt. is unable to kick the can further down the road to oblivion. If runaway inflation indeed continues, they will have to be sold at a point before govt. default and the proceeds put into precious metals or strong competing currencies if there are any, but I expect them to outperform precious metals until that time because of the leverage to inflation. At any rate they are a great diversifier for a portfolio designed to survive hard inflation.

There are only two TIPS issues that I found selling at anywhere near a 50% discount, because they are the long term issues that originated in the near-zero madness of a few years ago. Buying long treasuries at that time was just insane - I think that the only customers at the treasury auctions must have been either institutions whose rules dictated investing in treasuries, or speculators expecting deeply negative rates to develop. There is a short term risk that the discounts will get even deeper if interest rates continue to rise. Buying them now is “catching a falling knife” but at some point the market might notice them in their unique position among the millions of other bonds, and their falling prices might reverse. At today’s price though, I find them already compellingly attractive.

Good luck,

Ed.

In a message dated 8/29/2026 5:23:53 PM Pacific Daylight Time, admin@discussion.fool.com writes:

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11

I’ll start by saying I do not consider TIPS to be simple.

I thought about the yield calculation and I agree with laffisloon’s yield.

While it’s true that inflation compounds on the inflation-adjusted principal, I don’t believe you are thinking about the yield calculation correctly (if you think the inflation return is doubled).

One factor to consider is you pay about $59 (not $49) for the bond based on inflation-adjusted principal.

Another factor is that all of that discount is going to real yield (not somehow doubling inflation returns).

The principal is today $120. Suppose there is zero inflation until the bond matures in 26 years, so you get $120 in principal after 26 years.

Then the real yield from the discount is:
($120/$59.7)^(1/26) - 1 = 0.0272 = 2.72%

(total real yield = coupon + discount = 0.125 + 2.72 = about 2.84%)

Pricing from Google, fwiw:
30-year TIPS maturing on February 15, 2052 (CUSIP: 912810TE8).

  • Quoted Clean Price: $49.753 (per $100 face value)
  • Real Yield (YTM): 2.943%
  • Inflation Index Ratio: 1.19965
  • Coupon Rate: 0.125% (paid semiannually on February 15 and August 15)
  • Inflation-Adjusted Clean Price: $596.86
  • Accrued Interest Owed: $0.07
  • Total Cash Outlay (Dirty Price): $596.93 (per $1,000 face value)
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This whole discussion is not coming from disagreement. It is coming from misunderstanding. My thesis rests on getting the full Inflation-adjustment on the principal value of a bond that you buy at half price. Thus if the payment is 5% of the face principal value of the bond, it will be 10% of the purchase price of the bond; that is 10% of your cost basis. This is indeed a unique situation and the bonds (bought at half price) will be fabulously lucrative in the event of a run of high inflation.

That’s what I said, and it is true. At 5% inflation, the one year return on every $100 of your investment will be about (5% plus 2.8%) times two equals 15.6%, which is 10.6% real. Not bad. At 10% inflation, your return ON YOUR INVESTMENT DOLLAR is about 25.6%, or 15.6%% real. Not too shabby. I can even see these TIPS selling at a premium in those circumstances.

If inflation stops, you look like a fool but still make a positive real return. You only start losing money in a deflation as the principal value is reduced back towards $1,000.

Good luck,

Ed.

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US annual interest expense is up to a record 18.5% of federal government revenue, according to fresh analysis from bond investment firm Doubleline (see chart below). This is now officially above the previous record of 18.4% set in 1991.

Yes, Donald Trump did make comments in May 2016 suggesting he might “make a deal” or negotiate partial repayment with creditors if the economy crashed, but he quickly walked back and clarified those statements after drawing intense backlash from financial markets and economists. [1, 2, 3] This material is a NYT quote originally.

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Again,

  • one pays for the inflation-adjusted principal ($120), not the par value ($100), and
  • the entire discount goes to the real yield (contributing about 2.7%), not to any additional inflation yield

Here’s the bond math for the nominal yield, year-by-year (assuming 26 years for simplicity).

A nominal yield of about 8.11% discounts the coupon payments and final principal, in nominal dollars, back to the current market price of about $59.

Therefore, today’s market price gives a yield of about 8.11% in the case of 5% inflation.

TIPS Bond Example

  • Maturity: 26 Years
  • Real Coupon Rate: 0.125% per annum
  • Current Inflation-Adjusted Principal: $120.00
  • Current Market Price: $58.80 (calculated as $120.00 × 0.49)
  • Annual Inflation Rate: 5% per annum
  • Calculated Nominal YTM: 8.1154% (Exact Method via Fisher Relation)

TIPS Bond Nominal Cash Flow Schedule

Year Inflation-Adj. Principal Inflation Increase (YoY) PV of Principal Coupon Payment PV of Coupon Cumulative PV of Coupons Sum of PVs (Yr 26 Only)
1 $126.00 $6.00 $116.54 $0.1575 $0.1457 $0.1457 —
2 $132.30 $6.30 $113.18 $0.1654 $0.1415 $0.2872 —
3 $138.92 $6.62 $109.92 $0.1736 $0.1374 $0.4246 —
4 $145.86 $6.95 $106.75 $0.1823 $0.1334 $0.5580 —
5 $153.15 $7.29 $103.68 $0.1914 $0.1296 $0.6876 —
6 $160.81 $7.66 $100.69 $0.2010 $0.1259 $0.8135 —
7 $168.85 $8.04 $97.79 $0.2111 $0.1222 $0.9357 —
8 $177.29 $8.44 $94.97 $0.2216 $0.1187 $1.0544 —
9 $186.16 $8.86 $92.24 $0.2327 $0.1153 $1.1697 —
10 $195.47 $9.31 $89.58 $0.2443 $0.1120 $1.2817 —
11 $205.24 $9.77 $87.00 $0.2566 $0.1087 $1.3904 —
12 $215.50 $10.26 $84.49 $0.2694 $0.1056 $1.4960 —
13 $226.28 $10.78 $82.05 $0.2828 $0.1026 $1.5986 —
14 $237.59 $11.31 $79.69 $0.2970 $0.0996 $1.6982 —
15 $249.47 $11.88 $77.39 $0.3118 $0.0967 $1.7950 —
16 $261.94 $12.47 $75.16 $0.3274 $0.0940 $1.8889 —
17 $275.04 $13.10 $73.00 $0.3438 $0.0912 $1.9802 —
18 $288.79 $13.75 $70.89 $0.3610 $0.0886 $2.0688 —
19 $303.23 $14.44 $68.85 $0.3790 $0.0861 $2.1548 —
20 $318.40 $15.16 $66.87 $0.3980 $0.0836 $2.2384 —
21 $334.32 $15.92 $64.94 $0.4179 $0.0812 $2.3196 —
22 $351.03 $16.72 $63.07 $0.4388 $0.0788 $2.3984 —
23 $368.58 $17.55 $61.25 $0.4607 $0.0766 $2.4750 —
24 $387.01 $18.43 $59.49 $0.4838 $0.0744 $2.5494 —
25 $406.36 $19.35 $57.77 $0.5080 $0.0722 $2.6216 —
26 $426.68 $20.32 $56.11 $0.5334 $0.0701 $2.69 $58.80
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  • <<one pays for the inflation-adjusted principal ($120), not the par value ($100), and
  • the entire discount goes to the real yield (contributing about 2.7%), not to any additional inflation yield. >>

I agree.

I think that an analogy might help. If I buy two cows at half price, I get twice the milk, twice the leather, twice the meat, twice the renderings, and twice the bone meal etc. You pay half, you get twice as much for your money. In the case of TIPS you get the discount as a bonus, because each TIPS pays off at full price.

Ed.

In a message dated 9/1/2026 2:11:20 AM Pacific Daylight Time, admin@discussion.fool.com writes:

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