4 ms·

Because that is not "inflation". There is another economic term for that phenomenon, and conflating the two only creates confusion: * https://en.wikipedia.org/

Because that is not "inflation". There is another economic term for that phenomenon, and conflating the two only creates confusion: * https://en.wikipedia.org/wiki/Economic_bubble https://en.wikipedia.org/wiki/Economic_bubble Inflation/CPI is (roughly) about the cost of living determined via a basket of goods and services that one needs on daily/weekly/monthly basis. Financial assets are not needed to live: the bottom-half of US wage earners have no/little financial assets and yet are effected by inflation when they go shopping. And while shelter is, it is taken into account via rent or rent-equivalent (mortgage carrying costs): * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... I'm not sure where and when the idea of financial assets being included into the concept of inflation started, but it's a first world 'problem' of the wealthy.

deleted 6y ago
[deleted]
HPsquared 6y ago
Don't average people buy houses? It's a bit of an artificial distinction to exclude them. Inflation is also defined as expansion of the money supply (monetary inflation), and mortgages are a major source of money creation - the rate of this process being closely related to house prices.
- Majromax 6y ago
  > Don't average people buy houses? It's a bit of an artificial distinction to exclude them. When an average person buys a house and lives in it for a decade, they still have the house. Inflation is defined by consumption expenditures. I buy food, eat it, and no longer have that food to sell. I pay the power bill, having consumed power that cannot be resold. The consumed portion of housing is rent. And that is included in price indices; statistical agencies have to go to the trouble of modelling an owner-equivalent for owner-occupied housing. If you're still concerned about the technical definitions of what goes into a consumer price index, then you have plenty of others to choose from. The GDP deflator (a price index based on everything produced in the economy) shows trends very similar to the consumer price index over the medium-term. > Inflation is also defined as expansion of the money supply (monetary inflation), And those two concepts are not in fact equivalent. Going from an observed change in the money supply to changes in prices requires more intricate assumptions about how the economy works. The same money-supply increase can cause an increase in price levels in one country (say Venezuela) rather than another (the United States) depending on beliefs about permanence and the background state of the economy.
- throw0101a 6y ago
  Taken into account; see the BLS.gov link. * https://awealthofcommonsense.com/2020/07/mortgage-rates-are-insanely-low/ https://awealthofcommonsense.com/2020/07/mortgage-rates-are-... Some places have negative mortgage rates: * https://www.theguardian.com/money/2019/aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage https://www.theguardian.com/money/2019/aug/13/danish-bank-la... Homes seem to have had consistent carrying costs over the decades, and that is what determines the CPI. Yes, prices have gone up, but (a) interest rates have dropped, and (b) people are getting a lot more housing for their money (e.g., (average) square footage up).
yanderekko 6y ago
Uh, mere growth in asset prices is not a strong indicator of a bubble. How much would property prices have to decline for this asset class to no longer have supernormal returns for the past 20 years? Do you actually think that that's going to happen?

deleted 6y ago

[deleted]

HPsquared 6y ago

Don't average people buy houses? It's a bit of an artificial distinction to exclude them. Inflation is also defined as expansion of the money supply (monetary inflation), and mortgages are a major source of money creation - the rate of this process being closely related to house prices.

Majromax 6y ago
> Don't average people buy houses? It's a bit of an artificial distinction to exclude them. When an average person buys a house and lives in it for a decade, they still have the house. Inflation is defined by consumption expenditures. I buy food, eat it, and no longer have that food to sell. I pay the power bill, having consumed power that cannot be resold. The consumed portion of housing is rent. And that is included in price indices; statistical agencies have to go to the trouble of modelling an owner-equivalent for owner-occupied housing. If you're still concerned about the technical definitions of what goes into a consumer price index, then you have plenty of others to choose from. The GDP deflator (a price index based on everything produced in the economy) shows trends very similar to the consumer price index over the medium-term. > Inflation is also defined as expansion of the money supply (monetary inflation), And those two concepts are not in fact equivalent. Going from an observed change in the money supply to changes in prices requires more intricate assumptions about how the economy works. The same money-supply increase can cause an increase in price levels in one country (say Venezuela) rather than another (the United States) depending on beliefs about permanence and the background state of the economy.
throw0101a 6y ago
Taken into account; see the BLS.gov link. * https://awealthofcommonsense.com/2020/07/mortgage-rates-are-insanely-low/ https://awealthofcommonsense.com/2020/07/mortgage-rates-are-... Some places have negative mortgage rates: * https://www.theguardian.com/money/2019/aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage https://www.theguardian.com/money/2019/aug/13/danish-bank-la... Homes seem to have had consistent carrying costs over the decades, and that is what determines the CPI. Yes, prices have gone up, but (a) interest rates have dropped, and (b) people are getting a lot more housing for their money (e.g., (average) square footage up).

yanderekko 6y ago

Uh, mere growth in asset prices is not a strong indicator of a bubble. How much would property prices have to decline for this asset class to no longer have supernormal returns for the past 20 years? Do you actually think that that's going to happen?