Don't Be Fooled by Inflation Denialism

Written by Jason Simpkins
Posted February 26, 2021

There's a prevailing trend among many Wall Street analysts to dismiss inflation.

They tend to talk about it like it's ancient lore — something not seen since the 1970s. 

Case in point: One opinion writer for The Washington Post recently wrote, "Remember inflation? If you, like most Americans, were born after 1981, the answer must be 'no.'"

Honestly, what an absurd thing to say. 

I was born in 1983, and believe me, I'm plenty familiar with inflation. 

What cost $10 back then costs $26 now. But that doesn't even come close to telling the whole story. 

That's because the "headline" numbers or the oft-cited consumer price index flat-out ignore the cost of our most basic needs — things like food, shelter, health care, education, and energy. 

Those are some pretty important things. In fact, they account for the overwhelming majority of Americans' spending habits. 

So look at college tuition. 

Back in 1981 college tuition, including room and board, cost about $3,500 per year. Today, it's $35,000 — or closer to $20,000 if you stick to an in-state school. 

That's many multitudes more than the headline inflation rate.

Rising College Tuition Costs

Again, that's something millennials like me are plenty familiar with.

Now, let's take a look at home prices...

Case Schiller Home Price Index 1988 2020

Does that look like inflation to you? It does to me. 

Aside from the 2008 collapse, home prices have moved steadily higher these past few decades. And in fact, they've been particularly hot of late.

Home prices rose 10.4% in 2020, their fastest pace in seven years. And last week, the National Association of Realtors reported that the median existing-home sale price rose 14.1% in January to $303,900. That's a 341% increase from 1981, when the median home price was $68,900.

Food prices have been heading higher too.

Supermarket prices were 3.7% higher in January than they were a year ago. Prices for poultry, seafood, and dairy products increased between 4.4% (dairy products and other meats) and 9.6% (beef and veal), according to the USDA.

Looking ahead to this year, 2021 is expected to see wholesale pork prices rise 2%–5%, farm-level soybean prices rise 28.5%–31.5%, wholesale fats and oil prices rise 6%–9%, farm-level wheat prices rise 6.5%–9.5%, and wholesale wheat flour prices rise 4%–7%.

How about another basic necessity, healthcare costs?

Rising Healthcare Costs 2

Is that not inflation?

Everywhere we look, prices have soared in both the short and long term. Yet I'm supposed to believe inflation is merely a figment of my imagination. Or rather, that it simply doesn't count because the price of "durable goods" like washing machines is what's truly important. 

Well, that's absurd. And it's a dangerous way to think — not so much for economists pontificating on the pages of Forbes or The Washington Post, but for the chairman of the Federal Reserve.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Jerome Powell said this week. 

Powell also said it "could take more than three years" for inflation to hit the Fed's desired levels. 

That's three more years of double-digit increases in food prices. Three more years of soaring home prices (great if you're an owner — tough luck if you're not). And three more years of rising education.

So don't be fooled by inflation denialists — economists, analysts, even the chairman of the Fed — because you're going to be paying out of your ass for things for years to come. 

We all are. 

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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