Barrons.com: Who You Gonna Believe, Janet Yellen or Your Lying Eyes?

By SIMON CONSTABLE
When it comes to inflation, who are you going to believe, Janet Yellen or your lying eyes? If you see rising prices you should tweak your portfolio with some inflation-loving stocks.
Yellen, who heads the Federal Reserve, says inflation is subdued. The latest government data could delude you into thinking that's true, with the consumer price index up less than 2% on the year.
But here's the rub, because like politics, all inflation is local. If rising prices empty my wallet then we have inflation, regardless of what the government says.
My wallet is being crimped. Milk and beef are both up; jumping 7% and 9% respectively in the year through March, according to the latest figures. The median sales price for apartments in Manhattan, where I work, are up 11% in the last year, according to real-estate firm Trulia.
I could go on, and on and on. Still, some find anecdotes suspect.
So here are some less personal metrics that show official figures may soon catch up with "my" inflation.
"It's interesting to note that apartment REIT performance […] is a useful early warning inflation gauge," writes Jack A. Ablin, chief investment officer at BMO Private Bank.
He notes REIT values jumped way ahead of official figures lately. Since the end of 2011 the Bloomberg Apartment REIT index, which tracks at basket of real-estate stocks, has jumped 30% while CPI has been between 2% and 3.9%. If REIT investors are betting the right way, then "history suggests inflation is headed higher," he says.
Separately, the Manhattan-based Economic Research Institute spies inflation on the horizon via its Future Inflation Gauge, or FIG, which tracks metrics which foretell inflation surges.
"With the USFIG ticking up to a one-year high, underlying inflation pressures are starting to simmer," says Lakshman Achuthan, a cofounder of ECRI.
So what do you do?
Consider buying stocks in the energy and materials industries as they are seen as "late-cycle" sectors. They are "favored by investors as an economic cycle matures and inflationary pressures begin to build," writes Steven Pytlar, chief equity strategist at Prime Executions in a recent note. "These sectors are also seen as inflation hedges."
That means look at Energy Select Sector SPDR (ticker: XLE) and iShares U.S. Basic Materials (IYM) exchange-traded funds which track sectors in their sectors, as well as the usual standby gold.
See original story here.

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