<p>Yes inflating asset prices does not count as an inflation generally speaking although your friend's explanation is incorrect.</p>
<p>Fed is not an authority that decides how inflation is defined. Inflation is generally in academic literature simply defined as <a href="https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_2051-1" rel="nofollow noreferrer">(Lebow &amp; Rudd, 2016)</a></p>
<blockquote>
<p>Inflation measurement is the process whereby changes in the prices of <strong>individual goods and services</strong> are combined to yield a measure of general price change.</p>
</blockquote>
<p>Assets are neither goods and services so they should not be considered at all if we talk about inflation <em>generally</em>.</p>
<p>This being said economists also sometimes use the inflation concept to measure change in price level of things other than goods and services. Price indexes that track asset prices and concept of asset price inflation does exist, but if an economic text, book, article etc talks about inflation they will mean inflation as defined above. When they are using other meanings of inflation economists will always add clarification like  <em>asset price</em> inflation etc. However, again if the discussion is just about inflation, without any other caveats it is about general goods and price inflation. Also this is not because Fed would decree so, this is just general economic terminology (Fed has power over methodology they use for their measure of inflation but they try to capture inflation as accurately as possible).</p>

CC BY-SA 4.0
2021-05-03T16:39:28.037Z
I appreciate the explanation but this is roughly what I expected to be the case; that there is essentially an argument of semantics/definitions going on, rather than one related directly to the phenomenon of depreciating currency. Simply because textbooks define inflation in terms of price changes of goods and services, if I am talking about currency depreciation, does 'asset price inflation' not count as evidence of such debasement?
Runeaway3
CC BY-SA 4.0
2021-05-03T16:49:13.730Z
@Runeaway3 no, currency depreciation means currency looses value on foreign exchange market. Depreciation in forex market happens when there is inflation in goods and services, and generally the value of currency depends on general price level not asset prices if anything asset price inflation can even lead to currency appreciation. This is the thing, you can't just substitute asset price inflation for the general inflation and expect the common relationships to hold. If there is an inflation in goods and services then yes ceteris paribus that would devalue currency but in assets? Generally no
1muflon1
CC BY-SA 4.0
2021-05-03T17:15:35.873Z
Are homes assets or goods?
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2021-05-03T17:17:27.770Z
@1muflon1 Loses value relative to what, on the foreign exchange market? Other currencies? That would mean if all currencies changed value simultaneously it wouldn't count?
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CC BY-SA 4.0
2021-05-03T17:18:08.897Z
@1muflon1 what if I change my question away from 'depreciation' to general reduction of purchasing power? Is the response still the same?
Runeaway3
CC BY-SA 4.0
2021-05-03T17:19:30.540Z
@Runeaway3 yes - in economics when we talk about *general* purchasing power we talk about purchasing power in terms of goods and services
1muflon1
CC BY-SA 4.0
2021-05-03T17:26:53.220Z
@user253751 house prices are investment but housing is considered service so rent does count - even if you own your own house it will be counted but not via housing price but via imputed rent. And regarding the second question yes if all currencies depreciate simultaneously by same amount nothing would change on forex market. The exchange rate would be same before and after currency depreciation
1muflon1
CC BY-SA 4.0
2021-05-03T17:27:55.220Z
@1muflon1 Why do we not also impute rent to other goods? You can lease a washing machine, why do we count the washing machine as a good, rather than an asset with imputed laundromat fees?
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CC BY-SA 4.0
2021-05-03T17:33:16.650Z
@user253751 1. because purchasing house is considered investment but living in house is considered consumption - when you purchase house and live in it you are both investing and consuming at the same time - it would be like if with every stock you would have to pay for mandatory lollypop even if their price would be lumped together what would count toward CPI would be just the price of lollypop because you are not consuming stocks. 2. Rental price of washing machine would be included in CPI if its rented to final consumers
1muflon1
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2021-05-03T17:40:10.880Z
@1muflon1 So is buying a washing machine also investment, and washing your clothes also consumption?
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2021-05-03T17:43:26.510Z
@user253751 no if you buy a washing machine as a final consumer that is also consumption, but renting one is as well
1muflon1
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2021-05-03T17:46:26.513Z
@1muflon1 What's the fundamental difference between the washing machine and the house, then? Either way I buy something upfront and get continued value out of it. Is it just an arbitrary convention?
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2021-05-03T18:03:18.520Z
@user253751 because house can appreciate in value and store wealth, washing machine generally cant. The difference is always whether a 'thing' is an investment or not. In addition, it also matters what the thing is used for if you use washing machine as an input into further production it would also be investment if it is used for home consumption it is consumption
1muflon1
CC BY-SA 4.0
2021-05-04T02:29:27.113Z
@1muflon1 "A washing machine can't appreciate in value?" - how do you know? Did Antonio Stradivari make violins as "investments" that would appreciate in value over hundreds of years? Of course not, he (and all the other instrument makers in Cremona) just sold them to people who wanted to play them. Now, some of them are traded as "investments" by people who never play them at all.
alephzero
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2021-05-04T08:32:46.717Z
@alephzero I was clearly generalizing, as rest of the comment explains what matters is whether purchase is investment or not
1muflon1
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2021-05-04T09:51:11.323Z
@1muflon1 So anything that inflates is an asset (and therefore not counted in inflation), anything that does not inflate is consumption (and therefore counted in inflation)?!
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2021-05-04T09:54:45.713Z
@user253751 obviously not, are you even asking this in good faith? Your last comment makes me seriously doubt that. Goods and services can inflate as well what’s an distinguishing difference is whether something is an investment or not as clearly mentioned in my last comment
1muflon1
CC BY-SA 4.0
2021-05-04T10:08:48.573Z
@1muflon1 Anything whose value increases "can appreciate in value and store wealth", therefore it is an investment, right? Since that's the reason houses are investments and washing machines aren't? If washing machines could appreciate in value and store wealth, they would be investments, right?
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2021-05-04T10:18:04.580Z
@user253751 those are generally common characteristics of investment but just taken apart they are not sufficient conditions for something to be investment, eg just because something can appreciate in value it is not automatically an investment since providing detailed and nuanced overview of what investment is requires almost whole section of a textbook and since if I omit even a slight detail from definition all caveats etc you will start attacking it please just refer to explanation of investment in common macro textbooks. For example, have a look at Blanchard et al macro
1muflon1
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2021-05-04T15:50:53.553Z
@1muflon1 I don't have an economic textbook, so I just Googled it. According to "econlib.org" investment means "the production of goods that will be used to produce other goods (or services presumably)." So, the production of a washing machine is an economic investment. According to Wikipedia the accumulation of goods is also an investment, so producing food is an investment.
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2021-05-04T16:16:30.780Z
@user253751 except that you are wrong here. 1. first of all it is actually more nuanced for example investopedia states: An investment is an asset or item acquired with the goal of generating income or appreciation. This is actually consistent with econlib explanation because future production is income generating activity - but this is why I was telling you this is more nuanced. 2. **I clearly stated, (and at this point I feel like you are just willfully ignoring what I have written to argue) " it also matters what the thing is used for if you use washing machine as an input into further**
1muflon1
CC BY-SA 4.0
2021-05-04T16:19:19.760Z
@user253751  **production it would also be investment if it is used for home consumption it is consumption"**. In fact this is also explained in that econlib article if you would read it further. Hence, washing machine is consumption if it is sold to consumers as a consumer good and investment if it is sold to businesses to generate further goods and services. 3. "According to Wikipedia the accumulation of goods is also an investment, so producing food is an investment" - sorry but no this is completely wrong and Wikipedia nowhere states that producing food is investment
1muflon1
CC BY-SA 4.0
2021-05-04T16:22:06.877Z
that wikipedia article talks about *gross* investment  which is the difference between output and private and gov consumption and net exports $I=Y-C-G-NX$. Not all food is saved so you can't just claim that food is investment, in fact most food is sold to final consumers so it is consumption. Yes if you save food and use it in further production or as inventory at a store that would count as an inventory investment, but a person purchasing food and having it at home would be consumption.
1muflon1
CC BY-SA 4.0
2021-05-04T16:25:27.143Z
4. and why you should really consider consulting one or multiple textbook instead of looking at wikipedia which lacks wider context, investing into stock market (where we can see asset price inflation referred to in the Q) actually does not change $I$ because $I$ is **gross** investment - the $I$ on GDP does not even include the assets that the question even talks about, so why do you even bring it up?
1muflon1
CC BY-SA 4.0
2021-05-04T17:09:05.547Z
5. by the way also from wikipedia: **Consumption, defined as spending for acquisition of utility, is a major concept in economics and is also studied in many other social sciences. >> It is seen in contrast to investing, which is spending for acquisition of future income <<.** Again this is fully consistent with what I written above, since if you purchase washing machine for home it is for your own utility sake not to use as an input in producing more G&S for others. So what is the point to this arguing? just arguing for arguing sake?
1muflon1
CC BY-SA 4.0
2021-05-03T16:33:06.807Z
2021-05-03T16:33:06.807Z
1muflon1
<p>I have been having an argument with a friend of mine who obtained an economics degree in college. I have been arguing that increased money supply from the fed has led to inflation in asset prices, despite 'inflation' not really showing up in things like CPI. He argues that since Fed economists use CPI, I am wrong to even consider any other metric since I am not smarter or more knowledgeable than the fed. Is he right? Does inflating asset prices not really count as inflation?</p>

<macroeconomics><inflation><nonexpert><united-states>
Can inflation show up in assets without necessarily being reflected in classic inflation indexes?
Runeaway3
# Can inflation show up in assets without necessarily being reflected in classic inflation indexes?

(Asked by: username_0 on 2021-05-03)

I have been having an argument with a friend of mine who obtained an economics degree in college. I have been arguing that increased money supply from the fed has led to inflation in asset prices, despite 'inflation' not really showing up in things like CPI. He argues that since Fed economists use CPI, I am wrong to even consider any other metric since I am not smarter or more knowledgeable than the fed. Is he right? Does inflating asset prices not really count as inflation?

**Tags:** macroeconomics, inflation, nonexpert, united-states


---

## 1 answers

### Answer by username_1 on 2021-05-03. Score: 2

Yes inflating asset prices does not count as an inflation generally speaking although your friend's explanation is incorrect.

Fed is not an authority that decides how inflation is defined. Inflation is generally in academic literature simply defined as [(Lebow & Rudd, 2016)](https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_2051-1)

> Inflation measurement is the process whereby changes in the prices of **individual goods and services** are combined to yield a measure of general price change.

Assets are neither goods and services so they should not be considered at all if we talk about inflation *generally*.

This being said economists also sometimes use the inflation concept to measure change in price level of things other than goods and services. Price indexes that track asset prices and concept of asset price inflation does exist, but if an economic text, book, article etc talks about inflation they will mean inflation as defined above. When they are using other meanings of inflation economists will always add clarification like *asset price* inflation etc. However, again if the discussion is just about inflation, without any other caveats it is about general goods and price inflation. Also this is not because Fed would decree so, this is just general economic terminology (Fed has power over methodology they use for their measure of inflation but they try to capture inflation as accurately as possible).

> **Comments:**
> **username_0**: I appreciate the explanation but this is roughly what I expected to be the case; that there is essentially an argument of semantics/definitions going on, rather than one related directly to the phenomenon of depreciating currency. Simply because textbooks define inflation in terms of price changes of goods and services, if I am talking about currency depreciation, does 'asset price inflation' not count as evidence of such debasement?  
> **username_1**: @username_0 no, currency depreciation means currency looses value on foreign exchange market. Depreciation in forex market happens when there is inflation in goods and services, and generally the value of currency depends on general price level not asset prices if anything asset price inflation can even lead to currency appreciation. This is the thing, you can't just substitute asset price inflation for the general inflation and expect the common relationships to hold. If there is an inflation in goods and services then yes ceteris paribus that would devalue currency but in assets? Generally no  
> **username_2**: Are homes assets or goods?  
> **username_2**: @username_1 Loses value relative to what, on the foreign exchange market? Other currencies? That would mean if all currencies changed value simultaneously it wouldn't count?  
> **username_0**: @username_1 what if I change my question away from 'depreciation' to general reduction of purchasing power? Is the response still the same?  
> **username_1**: @username_0 yes - in economics when we talk about *general* purchasing power we talk about purchasing power in terms of goods and services  
> **username_1**: @user253751 house prices are investment but housing is considered service so rent does count - even if you own your own house it will be counted but not via housing price but via imputed rent. And regarding the second question yes if all currencies depreciate simultaneously by same amount nothing would change on forex market. The exchange rate would be same before and after currency depreciation  
> **username_2**: @username_1 Why do we not also impute rent to other goods? You can lease a washing machine, why do we count the washing machine as a good, rather than an asset with imputed laundromat fees?  
> **username_1**: @user253751 1. because purchasing house is considered investment but living in house is considered consumption - when you purchase house and live in it you are both investing and consuming at the same time - it would be like if with every stock you would have to pay for mandatory lollypop even if their price would be lumped together what would count toward CPI would be just the price of lollypop because you are not consuming stocks. 2. Rental price of washing machine would be included in CPI if its rented to final consumers  
> **username_2**: @username_1 So is buying a washing machine also investment, and washing your clothes also consumption?  
> **username_1**: @user253751 no if you buy a washing machine as a final consumer that is also consumption, but renting one is as well  
> **username_2**: @username_1 What's the fundamental difference between the washing machine and the house, then? Either way I buy something upfront and get continued value out of it. Is it just an arbitrary convention?  
> **username_1**: @user253751 because house can appreciate in value and store wealth, washing machine generally cant. The difference is always whether a 'thing' is an investment or not. In addition, it also matters what the thing is used for if you use washing machine as an input into further production it would also be investment if it is used for home consumption it is consumption  
> **username_3**: @username_1 "A washing machine can't appreciate in value?" - how do you know? Did Antonio Stradivari make violins as "investments" that would appreciate in value over hundreds of years? Of course not, he (and all the other instrument makers in Cremona) just sold them to people who wanted to play them. Now, some of them are traded as "investments" by people who never play them at all.  
> **username_1**: @username_3 I was clearly generalizing, as rest of the comment explains what matters is whether purchase is investment or not  
> **username_2**: @username_1 So anything that inflates is an asset (and therefore not counted in inflation), anything that does not inflate is consumption (and therefore counted in inflation)?!  
> **username_1**: @user253751 obviously not, are you even asking this in good faith? Your last comment makes me seriously doubt that. Goods and services can inflate as well what’s an distinguishing difference is whether something is an investment or not as clearly mentioned in my last comment  
> **username_2**: @username_1 Anything whose value increases "can appreciate in value and store wealth", therefore it is an investment, right? Since that's the reason houses are investments and washing machines aren't? If washing machines could appreciate in value and store wealth, they would be investments, right?  
> **username_1**: @user253751 those are generally common characteristics of investment but just taken apart they are not sufficient conditions for something to be investment, eg just because something can appreciate in value it is not automatically an investment since providing detailed and nuanced overview of what investment is requires almost whole section of a textbook and since if I omit even a slight detail from definition all caveats etc you will start attacking it please just refer to explanation of investment in common macro textbooks. For example, have a look at Blanchard et al macro  
> **username_2**: @username_1 I don't have an economic textbook, so I just Googled it. According to "econlib.org" investment means "the production of goods that will be used to produce other goods (or services presumably)." So, the production of a washing machine is an economic investment. According to Wikipedia the accumulation of goods is also an investment, so producing food is an investment.  
> **username_1**: @user253751 except that you are wrong here. 1. first of all it is actually more nuanced for example investopedia states: An investment is an asset or item acquired with the goal of generating income or appreciation. This is actually consistent with econlib explanation because future production is income generating activity - but this is why I was telling you this is more nuanced. 2. **I clearly stated, (and at this point I feel like you are just willfully ignoring what I have written to argue) " it also matters what the thing is used for if you use washing machine as an input into further**  
> **username_1**: @user253751  **production it would also be investment if it is used for home consumption it is consumption"**. In fact this is also explained in that econlib article if you would read it further. Hence, washing machine is consumption if it is sold to consumers as a consumer good and investment if it is sold to businesses to generate further goods and services. 3. "According to Wikipedia the accumulation of goods is also an investment, so producing food is an investment" - sorry but no this is completely wrong and Wikipedia nowhere states that producing food is investment  
> **username_1**: that wikipedia article talks about *gross* investment  which is the difference between output and private and gov consumption and net exports $I=Y-C-G-NX$. Not all food is saved so you can't just claim that food is investment, in fact most food is sold to final consumers so it is consumption. Yes if you save food and use it in further production or as inventory at a store that would count as an inventory investment, but a person purchasing food and having it at home would be consumption.  
> **username_1**: 4. and why you should really consider consulting one or multiple textbook instead of looking at wikipedia which lacks wider context, investing into stock market (where we can see asset price inflation referred to in the Q) actually does not change $I$ because $I$ is **gross** investment - the $I$ on GDP does not even include the assets that the question even talks about, so why do you even bring it up?  
> **username_1**: 5. by the way also from wikipedia: **Consumption, defined as spending for acquisition of utility, is a major concept in economics and is also studied in many other social sciences. >> It is seen in contrast to investing, which is spending for acquisition of future income <<.** Again this is fully consistent with what I written above, since if you purchase washing machine for home it is for your own utility sake not to use as an input in producing more G&S for others. So what is the point to this arguing? just arguing for arguing sake?  

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