A rare sighting of higher-than-expected inflation numbers ignited a rally Thursday in U.S. government bonds that compensate investors for rising price levels, extending what has been a comeback year for the debt.

While the overall consumer-price index fell last month, the CPI excluding energy and food posted a 1.6% increase on an annual basis. The reading encouraged investors to scoop up Treasury inflation-protected securities, or TIPS, which suffered a large retreat in the second half of 2014 as global inflation readings sank.

The data bolstered Federal Reserve Chairwoman Janet Yellen's stated view that the effect from tumbling oil prices won't push inflation down further, allowing it to move back to the central bank's 2% target in coming years.

Policy makers favor 2% inflation because it encourages consumers and businesses to spend rather than hoard cash, as they sometimes do when inflation falls. Japan has been locked in a battle with deflation for more than a decade, and recently European officials have taken action to halt expectations that prices would fall.

"The CPI report is giving the TIPS market confidence that the Fed may be able to win the war against disinflation," said Jonathan Lewis, chief investment officer at Samson Capital Advisors LLC, which has $7.6 billion in assets under management.

The inflation data sparked a selloff in regular Treasury bonds. Unlike TIPS, these bonds' fixed return over time will be eroded if consumer prices increase. The yield on the benchmark 10-year Treasury note settled at 2.016%, compared with 1.968% on Wednesday. Yields rise as bond prices fall.

Investors plowed $252 million of new cash into U.S.-based bond funds and exchange-traded funds targeting purchases of TIPS this year through Feb. 18, according to data from Lipper. That is the first inflow following $2.98 billion of net outflows last year and a record net redemption of $34.77 billion in 2013.

TIPS help holders hedge against inflation by boosting principal payments once consumer price inflation breaches a certain threshold.

The flows reflect investors' struggle to find assets offering a mix of safety and income at a time of uneven economic growth, low interest rates, near record stock prices in many regions and fears that rich economies will be beset for years by insufficient demand for goods and services.

Some analysts caution that there is little need to buy inflation protection, given the low level of annual price increases since the early 1980s. Yet TIPS buyers are betting that inflation in the longer term will gradually rise thanks to aggressive monetary stimulus from more global central banks, while wage pressure in the U.S. will gradually increase amid strong job growth.

A $9 billion sale of 30-year TIPS last week drew the highest foreign demand since 2010.

"TIPS are a good buy," said Mihir Worah, chief investment officer on real return and asset allocation at Pacific Investment Management Co., which has $1.68 trillion in assets under management. "Inflation will not stay low forever."

The TIPS purchases highlight the premium attached to high-quality bonds in a low-yield world. Soaring demand has sent many bonds in Europe to trade at negative yields, meaning a purchaser holding the debt to maturity faces a certain loss. The European Central Bank will start buying bonds next week and the buying binge will leave fewer bonds available for investors.

Pimco is one of the biggest investors in the $1.06 trillion TIPS market. Mr. Worah said the firm has been "aggressive buyers this year," without giving details.

TIPS have posted a total return--including price changes and interest payments--of 1.42% this year through Wednesday, according to data from Barclays PLC. That compares with 1.16% for nominal Treasury debt.

Riskier assets have fared better. So-called junk bonds sold by lower-rated U.S. companies have returned 2.75% over the same period. The S&P 500 stock index has gained 3% including price changes and dividend payments, according to FactSet.

Some investors are betting that wages in the U.S. will rise after years of sluggishness. TJX Cos. said Wednesday that it will increase pay for its U.S. workers starting in June. Wal-Mart Stores Inc. earlier this month also announced a plan to raise wages for U.S. employees this year.

"Wage pressure will not come immediately but in the longer term it will rise," said Richard Schlanger, a fund manager at Pioneer Investments in Boston which has more than $40 billion in assets under management.

Mr. Schlanger said he has bought TIPS in recent weeks, adding that he doesn't believe "we are in a deflationary world."

Write to Min Zeng at min.zeng@wsj.com

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