Asset Price Inflation Caused Almost 60 Percent of the CPI Increase After 2011 : How it Happened and Why it Matters

Asset price inflation has been an underrated problem in the U.S. economy for as long as 40 years. An excess of lendable funds developed following 1980, leading to secularly falling interest rates. In result, financial values increased much more than the real economy and jobs. The outcome was a significant increase in income inequality. Moreover, the excess of lendable funds encouraged subprime lending that brought on the financial crisis and Great Recession. Now, we find that asset price inflation is reflected in the Consumer Price Index. Owing to rising mortgage values, residential home prices have increased substantially. The outcome is rising homeowner costs that contributed almost 60% to recent increases in the CPI. This article explains how this happened and why it is important, particularly since the CPI has spiked since 2022