| Historical average: | 2.28% |
Real Inflation rate is 85% the 12-month change in CPI and 15% asset price inflation, measured by the change in the S&P 500 P/E ratio.
Most people either invest in stocks, directly or indirectly through their pension plans, or buy a house. Including asset valuation changes, such as fluctuations in house prices and stock market price-to-earnings (P/E) ratios, in the Consumer Price Index (CPI) provides a more comprehensive measure of economic well-being and inflationary pressures. Traditional CPI metrics primarily focus on consumable goods and services, often overlooking the significant financial impact of asset valuations on households. Rising house prices, for example, inflates living costs through mortgage payments and most people actually own their house vs renting. By incorporating market valuations, CPI betters capture the interplay between asset markets and the real economy, offering policymakers and investors a richer perspective on economic stability and the true cost of living.
Also, the higher "real CPI" is compared to the traditional CPI, the more there will be wealth inequality.
Data courtesy of the US Bureau of Labor Statistics , Robert Shiller and realcpi.org.
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Sources:
- US Bureau of Labor Statistics for current US inflation rate.
- Robert Shiller and his book Irrational Exuberance
for historic US inflation rates.
- Real CPI (calculations)
for historic US inflation rates.