Every six months your bonds are credited with the fixed rate plus the rate of inflation as determined by the Consumer Price Index for All Urban Consumers (CPI-U).
The earnings rate combines a 0.00% fixed rate of return with the 4.60% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
The increase for a coming year is based on inflation between the third quarter of the prior year and the third quarter of the current year, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. In the third quarter of 2008 energy prices and the CPI-W spiked, giving beneficiaries a hefty 5.8 % COLA for 2009.
Those in favor of a chained CPI argue that the current index, which considers the spending habits of urban wage earners and clerical workers, is outdated.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.