May Update: Infrastructure Capital Real Time Consumer Price Index: CPI-R (w/ April CPI data)
New York - Updated May 10, 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 (CPI-U).
Analysis Summary for April CPI-U vs CPI-R:
CPI-U printed in line with expectations at 0.41% with used car prices surging by 4.4% for the month with the shelter component finally decelerating from .6% to .4%. Our CPI-R printed at 0.21%, which was only 0.2% below CPI-U as the BLS’s highly lagged shelter estimate finally starts to cool off after housing prices peaked in May of last year. We continue to believe that we are in a deflation as CPI-U significantly overstates inflation due to the flawed BLS estimate. The annualized CPI-R over the last 8 months has been negative 2%. In addition, energy prices have collapsed over the last 12 months with natural gas prices down 75%, jet fuel down 65% and diesel prices down 40%. There is a 5% bleed through of energy prices to core, with a 3-6 month lag, so energy prices are a key leading indicator of core inflation. The Fed has made yet another policy error by raising rates too fast and too far, resulting in a banking crisis. The Fed is also likely to be late in cutting rates as it continues to rely on its discredited Phillips Curve model to managing inflation and the overall economy.
How Our Adjusted CPI-R analysis can help the Investing Community
It is very obvious that the original CPI methodology is an arcane and highly lagged measure focused on rent and owner’s equivalent rent and doesn't account for the impact on housing and rent affordability that increasing interest rates we have seen so far this year. This flawed original CPI formula continues to cause the Federal Reserve to be very late in recognizing and responding to economic problems and the rapidly rising inflation we have seen in the last 4 - 6 months.
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. Click to skip down in article to why FED is flawed in their use of CPI and how our CPI-R creates a better, real-time look.
See below for the Core CPI vs ICA Adjusted CPI data. 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.
CORE CPI vs ICA ADJUSTED CPI DATA
Updated with April 2023 CPI Data - Reported in May 2023
Click HERE to open a PDF with data in easier to view and printable format.
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.
Click HERE to learn more about InfraCap investing strategy and focus.
Want faster market insights and updates?
Follow Jay Hatfield's Twitter account for instant updates and insights as he sees important changes and information occurring in the US market and economy. twitter.com/jdhatfield_icap.
Follow InfraCap on Social Media
Follow InfraCap on social media for announcements on new market reports, exclusive webinars monthly market & economic outlook reports along with many other current market updates or insights plus InfraCap fund news at:
Copyright © 2023 Infrastructure Capital Advisors, LLC
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.
FUND RISKS Investors should consider each Fund's investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit the Fund's webpage. Please read the prospectus carefully before investing.
ICAP Exchange Traded Funds (ETF): Investing involves risk, including possible loss of principal. An investment in the Fund may be subject to risks which include, among others, investing in equities securities, dividend-paying securities, utilities, small-, mid-, and large-capitalization companies, real estate investment trusts, master limited partnerships, foreign investments, and emerging, debt securities, depositary receipts, market events, operational, high portfolio turnover, trading issues, active management, fund shares trading, premium/discount risk and liquidity of fund shares, which may make these investments volatile in price. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small and Medium-capitalization companies, foreign investments, and high-yielding equity and debt securities may be subject to elevated risks. The Fund is a recently organized investment company with no operating history. Please see the prospectus for a discussion of risks. Distributor, Quasar Distributors, LLC
PFFA Exchange Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stock: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets. Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security. Leverage: When a Fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. No Guarantee: There is no guarantee that the portfolio will meet its objective. Prospectus: For additional information on risks, please see the Fund’s prospectus.
PFFR Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Real Estate Investments: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management. Industry/Sector Concentration: A Fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated Fund. Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the underlying index may result in the Fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy. Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index. Market Volatility: Securities in the Fund may go up or down in response to the prospects of individual companies and general economic conditions. Price changes may be short or long-term. Prospectus: For additional information on risks, please see the Fund’s prospectus.
AMZA Exchange Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. MLP Interest Rates: As yield-based investments, MLPs carry interest rate risk and may underperform in rising interest rate environments. Additionally, when investors have heightened fears about the economy, the risk spread between MLPs and competing investment options can widen, which may have an adverse effect on the stock price of MLPs. Rising interest rates may increase the potential cost of MLPs financing projects or cost of operations, and may affect the demand for MLP investments, either of which may result in lower performance by or distributions from the Fund’s MLP investments. Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund. Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security. Leverage: When a Fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulations, or factors affecting underlying assets. No Guarantee: There is no guarantee that the portfolio will meet its objective. Performance Data: Performance data quoted backtested results. Backtested Performance was derived from the retroactive application of a model developed with the benefit of hindsight. Backtested performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost.
Please visit https://www.virtus.com/products/virtus-infracap-us-preferred-stock-etf#shareclass.742/period.quarterly for performance data current to the most recent month-end and the Fund’s standard performance information. You should consider the Fund’s investment objectives, risks, charges, and expenses carefully before investing. For PFFA, PFFR, and AMZA funds, contact VP Distributors LLC at 1-888-383-4184 or visit www.virtusetfs.com to obtain a prospectus that contains this and other information about the Fund. The prospectus should be read carefully before investing.
Virtus ETF Advisers, LLC serves as the investment advisor, and Infrastructure Capital Advisors, LLC serves as the sub-adviser to PFFA, PFFR, and AMZA. These three funds are distributed by VP Distributors, LLC, member FINRA, and a subsidiary of Virtus Investment Partners, Inc.
Past performance is not indicative of future results.
The links to the fund fact sheets will provide standardized performance and risk disclosures.
© 2023 Infrastructure Capital Advisors, LLC