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The inflation rate for the last 12 months was 0.9%, and has varied from 0.1% to 3.2% over the past 5 years. [1] So, no, inflation is not responsible for the hi
by prewett 11y ago
The inflation rate for the last 12 months was 0.9%, and has varied from 0.1% to 3.2% over the past 5 years. [1] So, no, inflation is not responsible for the higher valuations.
Higher valuations come partly from businesses having more cash because they are not spending money expanding, and because the low interest rates encourage companies to borrow money to buy back stock, which increases EPS and dividends, which increases share prices. Of course, there has been some legitimate growth over the past years, too.
[1] http://www.usinflationcalculator.com/inflation/current-inflation-rates/ http://www.usinflationcalculator.com/inflation/current-infla...
- HappyTypist 11y agoConsumer price inflation is not responsible for the increase in equity valuations, but quantitative easing and bond buybacks certainly do. QE reduces the yield of bonds, making stocks look more attractive and hence resulting in more money flowing into stocks. It additionally devalues the dollar, which leads to assets to be worth bigger numbers. QE has been mainly flowing to investors and the financial sector, and ts been staying there, hence not translating to consumer price inflation. So yes QE is responsible and QE caused inflation and inflation is also responsible. This inflation is confined to investment assets.