The wording on Savings Bond Advisor is confusing:

For December, the CPI-U was 225.672 ... Series I bond inflation component is based on the difference between the March and September levels of the CPI-U. In September, the index was 226.889. If the current negative trend continued, the next I bond rate, to be announced in May 2012, would be zero.

The term "I bond rate" is ambiguous.

Two I Bond rates will be announced May 1st: Fixed and Inflation. The new Fixed rate likely will continue to be zero. If the negative trend continues, the new Inflation rate will be (duh) negative.

The Composite rate, which is what investors actually receive, combines the new Inflation rate with whatever the Fixed rate was when the bonds were purchased. Assume the semi-annual inflation rate announced May 1st is a negative 1.0%. If you bought your I Bonds in May 2001 when the Fixed Rate was 3.0%, your annual composite rate for the six months May - October would be 0.97% (*). But the composite rate has a floor of zero. So if you bought this past November, when the Fixed rate was 0%, your composite rate for May - October would be 0%. I.e., the bond's value would stay the same. Actually, in this example of a negative 1.0% semi-annual Inflation rate, the composite rate would be zero as long at the Fixed rate at time of purchase was 2% or less.

* 3% + (2 X -1%) + (3% X -1%) See

TreasuryDirect Composite Earnings Rates for how this is calculated.