I’ve written about inflation previously, usually trying to put it in a broader context to try to help folks understand it more deeply (and accurately). I’m currently reading Barry Ritholtz’s How Not to Invest and he gives a great example on page 150 of my hardcover copy from the library (Part 2, Section 1). He references an Instagram post (now apparently deleted, but I found it on another account):
Like so many things you read on financial topics, this is both accurate and misleading. From November of 1990 to December of 2023, that basket of goods has indeed increased by 264%, so it is accurate. But it’s also incomplete because it doesn’t include the broader context. In this case, the broader context is that wages have increased by 274% over that same period of time, which essentially means that the groceries were slightly less expensive in 2023 as they were in 1990 (which is not at all the takeaway that most people who read the post would have).
But to really drive home the point, the S&P 500 was up 2,670% over that same period of time. As Ritholtz says in another section, dollars are for spending or investing. If you earned a dollar in 1990 and spent it on groceries, it would buy you what a dollar would buy in 1990. If you earned a dollar in 1990 and invested it, it would buy you almost 10 times the amount of groceries in 2023.
None of this is meant to imply that inflation isn’t a thing, or that it doesn’t have a really impact on folks. But it’s important to “zoom out” and look at things like inflation in a broader context before waxing nostalgic for the way things use to be.
Fisch Financial 