Inflation-Adjusted Market Returns by Ron McEwan
Spread It Thin, Please!
Does inflation explain why markets are higher in dollar value and why they seem to be worth less in purchasing value? Here’s a detailed look.
Say it’s circa mid-September 2012 — the markets are attempting to reach all-time highs again (for the third time since 2000). Also reaching new highs is the price of gas, food, and many everyday living necessities. With the indexes reaching these levels, why does it seem like purchasing value is going down? The talking heads on the business news attribute this to inflation. Does this explain why markets are higher in dollar value and why they seem to be worth less in purchasing value?
MAKING THE ADJUSTMENTS
To answer this question I looked at the markets with an inflation adjustment. It’s not that difficult; all you have to do is enter monthly price data for the index or security of choice. In my example, I used the S&P 500 index data series going back as far as 1871.