To hedge against a big and sustained pickup in prices, you are better off investing in stocks of companies that really jump during times of inflation, such as energy and real estate. Since 1970, the stock market sectors that have performed best during months of rising consumer prices are energy, information technology, materials and healthcare, according to Sam Stovall of S&P Global Market Intelligence.
* There is a worst-case scenario. Like all other bonds, i-bonds lose value when interest rates go up. Should interest rates rise faster than inflation does - expanding what economists call "real rates" - holders of TIPS may get slammed. And because their bonds currently are lower-yielding than Treasuries of comparable maturities, they will become less valuable as rates rise, and not be cushioned by any rising-CPI payouts.
* You have to plan around a tax hit. Even if you hold your TIPS and TIPS funds for years and years, you will be liable for federal income taxes on the income you earn every year, including the increase in value of the bond should rates fall. That means that if you decide to invest in them, you should do so from within a tax-favored account, such as an individual retirement account or 401k.
* You might be betting wrong. Though TIPS currently are favorably priced, it will take a global economic surge and a recovery in oil prices before there is any big jump in inflation, according to Dan Shackelford, portfolio manager of the T. Rowe Price Inflation Protected Bond Fund.
"I don't think we're in the midst of a forced march to higher inflation anytime soon," he said.