Art market signals inflation: BofA's McManus

By Jennifer Coogan

NEW YORK (Reuters) - Rising prices for collectibles, ranging from fine art to exotic cars, are a pure gauge indicating that inflation is increasing, the chief investment strategist for Bank of America Securities said on Monday.

While government economists must make determinations about how much price increases in components of the Consumer Price Index reflect improvements in quality, collectibles are products that do not change over time, Tom McManus said at the Reuters Investment Outlook Summit in New York.

"There's nothing a Picasso or an old Ferrari can do for you in 2007 that it couldn't in 1987. The increase in the price of collectibles is pure inflation," McManus said.

In a sign that the collectibles market is surging, McManus pointed to auction house Sotheby's Holdings Inc. (BID.N: Quote, Profile, Research, Stock Buzz), whose shares are up 78 percent from a year ago.

Sotheby's stock "is doing as well as it is because the art market is on fire," McManus said. The wealthy "are allocating out of dollars and into stuff that they expect will maintain its value."

Since other inflation indicators such as the CPI and the core personal consumption expenditures price index are underestimating inflation, the Federal Reserve is right to maintain a vigilant stance on price pressures, McManus said.

For summit blog: summitnotebook.reuters.com/)