The interbank inflation market is pricing tomorrow's CPI-U (for July) at 219.0 - 219.3 market.
But at a price of 101-00, the Jan 2009 TIPS imply a settlement index of only 218.16 for Jan 15, 2009 (which will be interpolated betwen the October and November CPI-U setitngs. There are at least two ways you can get to that number. Here is one of them:
I can earn 2.10% on an OIS basis to 1/15/09. Alternatively, I can buy the Jan-09 TIPS at 101-00, for a full price of 134.3964. To earn 2.10% annualized on an initial investment of 134.3964, I would have to end up with 134.3964 * (1 + 2.10% * 154/360) = 135.604.
I only have one cash flow left, constituting the coupon (1/2 of 3.875% rate) and the principal. That flow, in nominal dollars, will be $100 * [ 1+(3.875%/2) ] * EndCPI / 164.00000, where the last expression is the index adjustment. It is a simple matter then to show that, for this flow to equal 135.604 (and so for me to be indifferent), the EndCPI must be 218.16.
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