Why the CPI reflects ‘massive shell game’
Investors in Treasury inflation-protected securities should be aware the “government is playing games with the CPI numbers” in an attempt to keep inflation low, said Robert Arnott, chairman of Research Affiliates LLC.
Investors in Treasury inflation-protected securities should be aware the “government is playing games with the CPI numbers” in an attempt to keep inflation low, said Robert Arnott, chairman of Research Affiliates LLC.
At a speech last week in Newport Beach, Calif., he recommended TIPS as an attractive investment even though there are problems with the Consumer Price Index. The principal amount of TIPS is adjusted upward as the CPI rises.
Anticipating a “serious jolt” of inflation in the next three to five years, he told InvestmentNews thath a “massive shell game” by the government to keep the economic numbers looking good will mask some of the impending problems.
The most recent misuse of the CPI was the August/September number, Mr. Arnott said, when the Bureau of Labor Statistics used car prices that were net of the Cash for Clunkers incentive program, which gave qualifying automobile buyers up to $4,500 in rebates. The BLS calculated the rebate as a price drop.
“That’s pure fraud” in the CPI, Mr. Arnott said, adding that low inflation figures also tend to overstate real GDP growth.
Mr. Arnott gave an otherwise gloomy assessment for the economy and financial markets, advising attendees to avoid growth stocks and commodities at least until later this year when lower inflation numbers will spook the markets.
“That’s the time to buy inflation assets,” he said.
Mr. Arnott also recommended deep-value stocks, investment-grade bonds and some leveraged loans.
E-mail Dan Jamieson at [email protected].
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