Asset price inflation is an economic

Economy

An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

 phenomenon denoting a rise in price

Price

-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

 of asset

Asset

In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s, as opposed to ordinary goods and services

Goods and services

In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility. It is often used when referring to a Goods and Services Tax....

.
Typical assets are financial instruments such as bonds

Bond (finance)

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

, shares

Share (finance)

A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...

, and their derivatives

Derivative (finance)

A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...

, as well as real estate

Real estate

In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

 and other capital goods.

Price inflation and assets inflation

As inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 is generally understood and perceived as the rise in price of 'ordinary' goods and services, and official and Central bank

Central bank

A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

 policies in most of today’s world have been expressly directed at minimizing 'price inflation', assets inflation has not been the object of much attention or concern. An example of this is the housing market, which concerns almost every individual household, where house prices have over the past decade consistently risen by or at least near a two digit percentage, far above that of the consumer price index

Consumer price index

A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

.

Possible causes

Some political economists believe that assets inflation has been, either by default or by design, the outcome of purposive policies pursued by central banks and political decision-makers to combat and reduce the much more visible price inflation. This could be for a variety of reasons, some overt, but others more concealed or even disreputable.

Possible results

Asset price inflation is often followed by an asset price crash, a sudden and usually unexpected fall in the price of a particular asset class. Examples of asset price crashes include Dutch tulips

Tulip mania

Tulip mania or tulipomania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed...

 in the 17th century, Japanese metropolitan real estate and stocks

Japanese asset price bubble

The was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble's collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the global crisis in 2008. The...

 in the early 1990s, and internet stocks in 2001. It was also a contributory factor in the 2007 Subprime mortgage financial crisis.

External links

• Newsletter. Robert Blumen. Mises Institute