I've read the wiki here and about five articles on the web, I find them all confusing, here's the source of my confusion:

"If there is inflation, the adjusted principal goes up. If there is

**deflation**, the adjusted principal goes down"

and this quote from investopedia aligns with my definition of deflation:

"Deflation is the general decline in prices for goods and services occurring when the inflation rate falls below 0%. "

Here is the example in the bogleheads wiki:

**Like regular bonds, a TIPS bond also pays interest twice a year. The semi-annual interest is calculated by multiplying the adjusted principal by one-half of the interest rate on the bond. For example, if a TIPS bond has a stated interest rate of 2% and the index ratio is 1.035 on the date of the interest payment date, a $1,000 bond will pay interest of**

$1,000 * 1.035 * 2% / 2 = $10.35

If the index ratio goes to 1.050 on the next interest payment date six months later, the same bond will pay interest of

$1,000 * 1.050 * 2% / 2 = $10.50

If the index ratio goes to 0.985 on the next interest payment date another six months later, the same bond will pay interest of

$1,000 * 0.985 * 2% / 2 = $9.85

$1,000 * 1.035 * 2% / 2 = $10.35

If the index ratio goes to 1.050 on the next interest payment date six months later, the same bond will pay interest of

$1,000 * 1.050 * 2% / 2 = $10.50

If the index ratio goes to 0.985 on the next interest payment date another six months later, the same bond will pay interest of

$1,000 * 0.985 * 2% / 2 = $9.85

here are my questions:

- is the term "deflation" in the wiki meant to denote a decrease in the inflation rate or is it when the inflation rate falls below 0%?

- If the former, should the principal have been adjusted up after the second payment and down after the third payment? If so, doesn't that render the wiki example incorrect?

tia,