CPI conveniently doesn't measure asset prices.

Inflation has been "stubbornly low" for 20 years while asset prices have outperformed historical averages the entire time.

Asset prices seem to have diverged from the real economy because assets are primarily funded with debt (real estate, corporate investment) which has been artificially priced lower, while goods are paid with earned income which hasn't been manipulated.

But why is general asset inflation problematic? There's a pretty clear reason consumer good inflation is bad.

> Asset prices seem to have diverged from the real economy because assets are primarily funded with debt

Or maybe it's because with rising productivity, capital has become more valuable over time.

Asset prices going up ad infinitum means you can no longer afford a place to live.

In fact it would mean that the only people who can afford assets are people who already have assets.

> "Or maybe it's because with rising productivity, capital has become more valuable over time."

We have 0.1% interest rates, negative in some countries, that indicates a glut of capital, not "shortage of valuable capital"

The CPI does include rent. And if you check the listings, you won’t find that the money supply multiplying has led to prices multiplying. It seems like it’s just supporting current prices. If prices do start to rise too quickly they can gradually pull back that support.

The inflation in asset values (e.g. equities / real estate / gold).

People incorrectly assume inflation means "the price of everything goes up". The problem word here being everything.

Why? Well because prices aren't merely dictated by supply, but rather supply & demand. Simply comparing inflated money supply to the good supply is naïve, as it ignores to factor in the demand for different goods.

As so, for a dumb example, it's entirely possible to have inflated stock prices but not see inflated sock prices, if all the extra money is chasing stocks, and not socks...

> People incorrectly assume inflation means "the price of everything goes up".

Because they've spent a few generations making sure people don't understand the difference between price inflation and monetary inflation by using the two interchangeably.

This whole sub-thread is a perfect example, "the Fed has been printing money like there's no tomorrow but, look, there's only 0.44% inflation".

This makes a lot of sense, thanks for the explanation!

CPI is inherently flawed due to basket of goods methodology and consumer substitution for cheaper/different alternatives than in the past when prices to their current basket changes. For example average housing spend could be steady while people get smaller homes and CPI would not reflect that. Likewise with lower quality food by some metric or other.

So much like how the S&P/NASDAQ has a bias for growth because losers are swapped out for winners, the CPI basket has a negative price bias as expensive goods are swapped out for cheaper ones.

Monetary inflation leading to shifts in trading rates for other assets. USD is down against many other currencies lately (ie I checked CAD, EURO, GBP)

> Monetary inflation

It's incorrect to refer to monetary inflation as just "inflation." If you're talking about price inflation, we're not seeing that yet - although 5 year inflation expectations are popping back up again [0]

So far, it's looking like the Fed is doing as best as could be expected.

[0]: https://fred.stlouisfed.org/series/T5YIE

Sure. But we are talking about inflated asset prices. Printing more money just makes the truly valuable things take more units of an inflated currency pool

> Printing more money just makes the truly valuable things take more units of an inflated currency poo

Only true if everything else holds constant. Also, wouldn't just apply to asset prices but all prices.

Everything else, unfortunately, is not holding constant. [0]

[0]: https://fred.stlouisfed.org/series/M2V

Now this is just my conspiracy theorist side coming out, but I think the only reason the government cares about frequency of exchange is that they get a cut on each event. The more frequent the exchange, the sooner they get 100% of it back.