The Definition of Inflation

By Charlie Bilello

13 Apr 2021

There is one definition of inflation that seems most applicable to today…

“Too much money chasing too few goods.”

We are seeing the impact of trillions of dollars in stimulus money chasing a limited supply of goods almost everywhere you look…

Financial Asset Price Inflation

-Stock prices are at record highs, up 50-80% in the last year…

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-Junk bond prices have soared, pushing yields down to record lows and credit spreads near their tightest levels in the past 10 years…

-The Crypto space has gone parabolic, with the 2 largest assets (Bitcoin and Ethereum) up 770% and 1,250% in the past year…

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Housing Price Inflation

-US Housing Prices are booming, at record highs nationally and showing their highest rate of increase (+11% YoY) since 2006.

Every major metropolitan area in the country has seen its prices surge over the last year…

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Meanwhile, housing supply remains near record lows…

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With demand going through the roof and little supply, input costs are rising fast. Lumber prices have skyrocketed, more than tripling over the past year…

Commodity Price Inflation

Other commodities are moving higher as well, with a broad commodity index (CRB) up 84% from the lows last April.

The price of Copper, a major industrial metal, hit a 9-year high in February and is up over 70% in the last year.

The prices of agricultural commodities are also moving up, with Corn at its highest level in over 7 years.

Used Car Inflation

The used car market is the perfect example of “too much money chasing too few goods.” Prices of used cars have exploded to the upside, increasing 26% in the past year.

Source: Manheim

Collectible Inflation

Collectibles have also benefitted from this trend, with everything from art to watches to vintage cars to sports trading cards experiencing epic price booms.

A mint Michael Jordan rookie card that sold for under $15,000 in 2015, hit a value of $50,000 in April 2020, $90,000 in May 2020, and over $200,00 in December 2020. Earlier this year, the same card was sold for more than $700,000.

There are countless examples of this, including the new category “digital art” where one NFT was recently sold for $69 million.

A square collage of 5,000 works from Beeple, start with the oldest in the top left corner and continuing to recent works in the bottom right corner.

Never Let a Crisis Go to Waste

As we entered the pandemic and initial shutdowns last year, there was a broad consensus: we needed to borrow money and flood the economy with stimulus dollars as quickly as possible to stave off a second Great Depression.

But when the shutdowns ended and the economy quickly recovered (US retail sales hit a new high in June 2020), a strange thing occurred. The calls for trillions more in stimulus continued – and not only for those who had been financially impacted by the pandemic, but for almost everyone.

The result: over $5.3 trillion in stimulus has been passed thus far with another few trillion more expected in the coming months (infrastructure bill). And so what started out as an emergency tool to prevent another Depression (to replace lost income) has morphed into a borrowing and spending binge like we have never seen before (to enhance incomes that are already at record highs). The old political saying of “never let a crisis go to waste” rings true, and it’s never been easier to buy votes with the promises of more free money.


The Definition of Inflation

Americans have never been more united on this one issue: the belief that there is absolutely no downside to borrowing from our children’s and grandchildren’s future so that we can spend more money today.

Memories of the inflationary spiral in the late 1970s and early 1980s have long faded, and the younger generations are not fazed one bit by the prospect of higher prices.

Additionally, we have a Federal Reserve that has explicitly stated that they want higher inflation and will maintain their easy money policies (0% interest rates and trillions in bond purchases) for years to come in an effort to achieve that goal.

Judging by the lack of opposition to additional spending and fiscal/monetary stimulus, the people seem to agree, at least for now. Which suggests that inflationary pressures will have to continue to build before it is viewed as a problem. Reading a definition of inflation is one thing, but living through it and understanding the consequences is quite another. There’s no teacher like experience.

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