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Inflation – Is It Coming Or Is It Here?

March 25, 2021

It is assumed, based on economic theory, that the more money in circulation, the more likely prices will rise and in turn, inflation. Strikingly, it is not occurring today. Yet, the amount of money in circulation increased last year by 25% but inflation was only up 1.4%-1.6%.

The calculation of inflation, however, doesn’t always reflect what is going on in the underlying economy. Did you know housing prices rose 8.4% in 2020? The median price actually rose 14.4%! While it is true interest rates and thereby mortgage interest is down, that is still a lot of price inflation to compensate for.

Another area of inflation – the stock market. The higher the price of a stock, the lower the value of the dividend. If the stock price is $100 and the dividend yield is $1.50 on $100 and the stock price increases to $200, the dividend is only 75 cents. The higher the stock price, the lower the dividend may represent.

So, while the usual measurements of CPI (Consumer Price Index) aren’t reflecting inflation, other assets are.

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