There are several types of inflation-based bonds being issued by the US. Be sure you're comparing apples with apples here.

The ones Scott Burns was talking about (TIPs) "step up" the value of the bond each year in a taxable amount. The I-bonds the previous poster was talking about pay out an interest income which is supposedly based on inflation.

I think the real downside of I-bonds is that the rate is completely arbitrary. If the budget trolls cook the books to make it look like there is no inflation, and the "fixed" interest rate is set to zero, you've just given the government an interest-free loan.

Unless there was some way to prevent the gov't from doing this bait-and-switch, I'd stay away from I-bonds.