The truth about inflation

Posted by Jacob Radke

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I feel like there are several misconceptions around inflation.

One: Falling inflation doesn’t mean falling prices. It just means your rent payment went from $1,500 a month to $1,550 instead of going to $1,700.

Two: Lower inflation isn’t any different than higher inflation. Higher or lower make little difference. What makes the real difference is stability. The difference between 2% consistent inflation and 5% consistent inflation is nothing. In a 5% consistent inflation world people would just ask for 5-7% raises instead of 2-4% raises, everyone knows what to expect and then others deliver. We’ve just arrived at a consensus that 2% is good. The bread is the stability of inflation, it’s when inflation goes from 2% to 7% back to 3% then to 8%, you have problems because people and businesses can’t predict and expect the future.

Three: Your personal consumption basket is different than the average and everyone elses. Take a 70 year old man versus a 22 year old woman. The 70 year old man may not be quite as sensitive to college tuition, Starbucks lattes, and housing costs. And vice versa, the 22 year old woman may not be traveling as much as the 70 year old retiree, so he will have a higher weighting to gas, hotels, and plane fights. He may have higher food away from home expenses. Your consumption basket is different than the CPI, most likely.

Four: Inflation affect assets in a unique way. Yes sometimes margins get compressed in businesses and that hurts, but never underestimate corporate America’s ability to pass on costs and sustain their margins and profits. The real way inflation affects assets is in buyer psychology (which sometimes makes consumer spending harder to predict, and thus the company's earnings are harder to forecast and therefor discounted) and in interest rates. An interest rate is the base rate plus inflation plus a credit premium. When those are higher there will be price declines in bonds and stocks because the future cash flow predictions have to be discounted more because there are new higher earning alternatives.

Now let’s talk about the print released on Wednesday.

Here’s how it’s gone down year to date.


Jan-23 6.41%

Feb-23 6.04%

March-23 4.99%

April-23 4.93%


Jan-23 5.58%

Feb-23 5.54%

March-23 5.59%

April-23 5.52%

Two things, inflation is coming down and the markets love it.

For the first time in a long time there is such a thing as real interest rates. The 6 month treasury is currently riding above the 4.93% CPI rate at 5.105%.

What does that mean. There is likely a floor on revaluation on stocks and bonds. When real rates enter the picture, especially when inflation is falling, future cash flows need not to be discounted more.

It doesn’t mean assets will rise either. What I do know is there can be coupons and dividends into the end of the year, even if the values don’t move.

The hard part is the Nasdaq 100 is up over 22% this year and the S&P 500 is up over 7%, bonds themselves are up over 5%. From a calendar year perspective this is above average, yet when you look at the stats bad years are typically followed by worse years or exceptionally better years.

The outlook seems to be positive yet we have several roadblocks. Government default, worsening recession, banking failures, credit crunches, inflation, and more all pose threats to the wonderful year we have had so far.

Anyways here’s everything I read, wrote and spoke this week.


Fixing financial mistakes

Running the Tape - Gold, Bitcoin, and Money Market Funds

Visualized: Real Interest Rates by Country (

Stock Market Tops, Bottoms & Middles - A Wealth of Common Sense

You Think You're Trading Vol...But Are You Really? (

ChatGPT Is Causing a Stock-Market Ruckus - WSJ

White House Debt-Ceiling Meeting Fails to Yield Breakthrough as Deadline Nears - WSJ


The AI PR Industrial Complex - by Alex Kantrowitz (

Breach of Trust: Decoding the US Banking Crisis of 2023 (

Good (Bad) Banks, Good (Bad) Investments: An Investing Perspective (

3 Takeaways From the 2023 Berkshire Hathaway Annual Shareholders' Meeting | Barron's (

Big Oil Has $150 Billion in Cash and Investors Want a Share - WSJ

Saudi Aramco’s Profit Slides as Oil Boom Cools - WSJ

Airbnb (ABNB) Q1 earnings report 2023 (

Another trip to the moon - by Douglas A. Boneparth (

Shares of data analytics firm Palantir surge 22% on profit forecast | Reuters


Inflation Eased in April but Remains Stubbornly High - WSJ

Economy Showed Signs of Cooling Last Month - WSJ

Warren Buffett: 'It is a different climate than it was six months ago' ⚠️ (

Some Things the Fed Doesn't Control - A Wealth of Common Sense

Scope Ratings places US credit ratings under review for possible downgrade | Reuters

The Fed and ECB Go Their Own Ways with Interest Rates…for Now | AB (

America’s Factory Boom Drives Sales Surge for Excavators, Steel and Trucks - WSJ

Does Anything Get Cheaper? - by Eric Soda - Spilled Coffee (

Personal Finance

Should You Save More to Retire Earlier? (


Small Applications, Growing Protocols (

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