New York - January 18, 2023 ~ The team at Infrastructure Capital Advisors has updated the new Real Time Consumer Price Index (CPI-R) with December 2022 data. As stated when launched in November 2022, we believe this new adjusted CPI analysis is far more relevant than the standard CPI. Our Real Time Consumer Price Index (CPI-R) for core December inflation is - 0.22% month over month for December versus the +0.30% reported by the BLS.
The 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 indactor of shelter prices.
The Findings: Inflation was considerably higher than reported in 2020/2021 and has recently fallen by more than indicated by traditional Core-CPI. The Federal Reserve was therefore late to recognize inflation, raising interest rates late into the cycle. Subsequently, the fed is now late to recognize falling inflation and is too aggressive tightening monetary policy.
See below for the Core CPI vs ICA Adjusted CPI data with update from Dec 2022 (reported in Jan 2023). Click on the table image to enlarge for better reading or click SEE FULL REPORT PDF to go to the PDF reader to read, save or print this data file.
Prelude to the creation of the real time consumer price index:
The critical disadvantage of the CPI is that in the early 1980s the method
ology 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 below 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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Infrastructure Capital Advisors, LLC (ICA) is an SEC-registered investment advisor that manages exchange traded funds (ETFs) and a series of hedge funds. The firm was formed in 2012 and is based in New York City. ICA seeks current income opportunities as a primary objective in most, but not all, of ICA's investing activities. Learn more about our investing strategy.
This material is for informational purposes only. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of ICA, or its affiliates. Not for distribution to the public. Opinions represented above are subject to change and should not be considered investment advice. Past performance is not indicative of future results. The links to the fund fact sheets will provide standardized performance and risk disclosures. * The ICA Adjusted CPI Index is derived from Core CPI as reported by the BLS, with its only difference being that it replaces the inflation allocated to "Rent of primary residence" and "Owners’ equivalent rent of residences" with the two-month lagged change in the S&P CoreLogic Case-Shiller U.S. National Home Price SA Index (SPCSUSS Index). We believe this better reflects current and future inflation. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please click here. Please read the prospectus carefully before investing.
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Past performance is not indicative of future results.
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