That's actually 1.94% in just the first three months of the year (through March 31, 2011). That's a 7.9% annual rate.
That said, market prices are probably not the best way to determine TIP as an inflation hedge. Prices and yields move inversely. As prices rise, future returns fall. Put another way, past performance is not necessarily indicative of future returns.
A better way to estimate TIP's ability to keep up with inflation can be found on the iShares website. It shows that the "average real yield to maturity" (the yield above that of the inflation rate as seen in the CPI) is 0.17%. It also shows that the fund's "expense ratio" is 0.20%. That's a very slight loss.
Over the long-term, I would therefore tell you that TIP will not fully protect you from inflation if you pay any tax at all on the proceeds of your TIP investment.
However, there aren't many alternatives. If gold and silver exactly tracked inflation over the long-term then you will lose purchasing power with them as well once the tax man is paid. Further, they've been in a bull market for a full decade. There's a serious risk that they will not track inflation at their current prices. For example, silver is extremely expensive relative to aluminum. The ratio was under 100-1 for most of the past century but was recently well over 500-1. I posted a chart of this relationship on my blog. Is silver a good long-term aluminum and/or toilet paper price hedge at these prices? I could be wrong, but I would argue no.