Can You Help Me Understand This Inflation That We Are Reading About?

July 14, 2022

Can we help you understand this inflation that we are all reading about? We definitely can! Watch this week's Arista Advice for an in-depth explanation.

Full Transcript:

Hello, welcome to Arista Advice! Question of the week is "Paul, can you help me understand this inflation that we're reading about?" I can. Let's not think that inflation is just a really simple thing. There's a lot of nuances to this word inflation that is being overly promoted in the media and on TV because it's everywhere you go. You go to the grocery store, you turn on your phone, you turn on the TV, you go to a website, this inflation is everywhere.

So let's talk about the three types of inflation.
Number one, and most important, it's the monetary inflation. The monetary inflation, as you can expect, since Covid has really taken off. Monetary inflation is influenced by the banking and the lending and the fiscal deficits driven by government spending. As you can imagine, the money supply, M2, in the government and in the economy has quadrupled. We saw $8 trillion of money get printed during Covid to combat the pandemic. We're now learning that they printed way too much. They lowered interest rates way too much.

The second form of inflation is the consumer price inflation. The consumer price inflation, as you'll see on this chart, shows that going back in history, the consumer price measures the average price increases of a basket of goods and services, such as food, clothing, and housing.

Not all inflation is bad, but the third type of inflation is the asset price inflation. As you'll see on this chart, inflation our real estate, our housing, our collectibles. You have jewelry. You have nice watches, Rolex watches particularly, you can't find one. You go get put on a waitlist. Why? Because inflation number one, the monetary, the government spent too much money. They printed too much money. They gave too much money to too many people, and they went and bought goods and services, and many people bought luxury goods. So the net worth of the GDP has gone from 7% up to 18%, as you'll see on this chart.

So remember the three types of inflation - they are in summary: monetary inflation, government printing money, consumer price inflation, which is the price of goods and services, clothing, and housing and third asset price inflation.

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