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ADJUSTED CPI REPORT
Updated November 2023:
Infrastructure Capital Real-Time Consumer Price Index Analysis
CPI-U vs CPI-R Adjusted w/ October CPI data
New York - Updated November 14, 2023 ~ The team at Infrastructure Capital Advisors has updated the new Real Time Consumer Price Index (CPI-R). As stated when launched in November 2022, we believe this new adjusted CPI analysis is far more relevant than the standard CPI. This report is updated monthly by the InfraCap team.
CPI Analysis Summary for September CPI-U vs CPI-R:
CPI-R is our proprietary measurement of core inflation that uses the Case-Shiller index to estimate shelter inflation. October CPI-R was up 0.47% MOM change and up 2.13% TTM change vs. the flawed BLS measure of 0.23% MOM change and 4.02% TTM change.
How Our Adjusted CPI-R analysis can help the Investing Community
We believe financial firms / advisors and individual investors can use our adjusted CPI-R to better recognize real-time changes in the economy and use that for better investing strategies. It also helps investors recognize the impact of housing and rental costs on CPI and the economy in general and use that to more closely scrutinize Federal Reserve views on the economy and understand the Housing Market better and how it could impact their portfolio.
The Adjusted CPI (CPI-R) Index:
The index uses seasonally adjusted Core-CPI (excluding Food and Energy) while adjusting the methodology for Shelter. Rather than using the highly lagged and subjective owner’s equivalent rent, CPI-R uses the “Case-Shiller 20-City Composite Seasonally Adjusted Index”, a more current indicator of shelter prices.
See below for the Core CPI vs ICA Adjusted CPI data with an update from September 2023 (reported in October 2023). Click on the table image to enlarge it for better reading or click SEE FULL REPORT PDF to go to the PDF reader to read, save, or print this data file.
CORE CPI vs ICA ADJUSTED CPI DATA
Updated with October 2023 CPI Data - Reported in November 2023
Prelude to the creation of the real-time consumer price index:
The critical disadvantage of the CPI is that in the early 1980s, the methodology was changed for estimating the cost of shelter from using changes in housing prices to an arcane and highly lagged measure focused on rent and owner’s equivalent rent. The issue with this change is that it creates a huge lag between the onset of inflation in shelter costs and the ultimate reflection in the CPI.
Specifically, the BLS uses a survey of homeowners asking them what they think their house would rent for. This methodology has two significant issues: the survey creates a big lag and homeowners may or may not have any idea what their own homes would rent for, since they are unlikely to rent out their own homes. These flaws render the CPI useless as a useful real-time indicator of inflation. In fact, it is classified as a lagging indicator of economic activity by economists.
If the Fed had been analyzing real-time indicators of inflation, they would have started tightening policy in 2020 instead of starting at the beginning of 2022. In addition, the Fed should have paused rate increases in July of 2022 when the real-time core CPI turned negative with a -.2% reading. The table above summarizes the Infrastructure Capital Real-Time Consumer Price Index (CPI-R). The data makes it clear that the Fed perpetrated an obvious major policy error by keeping its excessive monetary stimulus in place through the end of 2021.
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