MERCEDES S-CLASS SEDANS COST 1/2 OF WHAT THEY COST IN 1979
Leonard Steinberg wrote this in his excellent blog last week:
“In 1979 a Mercedes S-Class cost about $34,000. Today about four decades later, an S-Class Mercedes sells for around $111,000, more than triple.”
He was illuminating just how much inflation there already has been since 1979 – which I love.
But – it is also extremely interesting to put this in perspective.
$34,000 in 1979 is equal to $128,500 today. So, adjusted for inflation, Mercedes S-Class sedans are actually cheaper today than they were in 1979
But, if you adjust again for how vastly superior today’s models are (GPS, Bluetooth, suspension, horsepower/speed, durability, sound system, road noise, touch screens, computers, etc.) the cars probably cost about 50% as much as they did in 1979.
IS TODAY’S INFLATION TRANSITORY?
I had a bookie back in the day with whom I placed sports bets (yes, I know it wasn’t proper but it made football more fun to watch and I kept my stakes low). Anyway, my bookie loved me because I was soooo horrible at predicting anything when it came to sports (I lost about 80% of my bets).
I tell this story because the only thing my bookie might love more than me is the Fed – because they are the worst of all when it comes to predicting things – given that they have been proven wrong over and over and over (think Ben Bernanke telling the world that the housing market was just fine prior to 2008).
And right now the Fed is telling the world that inflation is “transitory,” or temporary, making it a very safe bet that it is not. 😊
Most “macro pundits” I follow think inflation is here to stay for the following reasons: (1) too much money is chasing too few goods – the classic definition; (2) supply chain issues creating shortages and pushing up prices will not be solved in the near term; (3) wages are shooting up, which will further increase prices; (4) rents, energy prices, housing prices and medical care costs (among other things) are already so much higher that they will spill over into everything else.
The other factor that some pundits mention is the fact that the Fed and the Federal Government absolutely need inflation, as it is probably the only way they can eliminate our massive debt load (by “inflating it away”).
The WSJ had a column discussing much of this today in fact: Fed Tapering Won’t Beat Inflation, and Erik Townsend discusses this often in his EXCELLENT Macro Voices Podcast (probably my favorite podcast because he present all viewpoints, and his interviews are extremely informative).
BOY, DOES THIS MATTER
Inflation matters for numerous reasons, but from the perspective of most readers, these are the biggies: (1) Rates will rise – a lot; and (2) Hard assets like housing will appreciate with inflation.
So…even though this is ridiculously self-interested advice, buying homes now still makes tremendous sense, as rates remain very low (but will rise sharply with inflation) and housing is an awesome inflation hedge.
If you don’t believe me, please listen to this Macro Voices Podcast with Luke Gromen as a guest. Luke is a macro-pundit-superstar, and he implores everyone to buy real estate as an inflation hedge.
He also explains what is going on in our economy (and what our concerns are) better than anyone.
