I have been having an argument with a friend of mine who obtained an economics degree in college. I have been arguing that increased money supply from the fed has led to inflation in asset prices, despite 'inflation' not really showing up in things like CPI. He argues that since Fed economists use CPI, I am wrong to even consider any other metric since I am not smarter or more knowledgeable than the fed. Is he right? Does inflating asset prices not really count as inflation?


Yes inflating asset prices does not count as an inflation generally speaking although your friend's explanation is incorrect.

Fed is not an authority that decides how inflation is defined. Inflation is generally in academic literature simply defined as (Lebow & Rudd, 2016)

Inflation measurement is the process whereby changes in the prices of individual goods and services are combined to yield a measure of general price change.

Assets are neither goods and services so they should not be considered at all if we talk about inflation generally.

This being said economists also sometimes use the inflation concept to measure change in price level of things other than goods and services. Price indexes that track asset prices and concept of asset price inflation does exist, but if an economic text, book, article etc talks about inflation they will mean inflation as defined above. When they are using other meanings of inflation economists will always add clarification like asset price inflation etc. However, again if the discussion is just about inflation, without any other caveats it is about general goods and price inflation. Also this is not because Fed would decree so, this is just general economic terminology (Fed has power over methodology they use for their measure of inflation but they try to capture inflation as accurately as possible).

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    $\begingroup$ I appreciate the explanation but this is roughly what I expected to be the case; that there is essentially an argument of semantics/definitions going on, rather than one related directly to the phenomenon of depreciating currency. Simply because textbooks define inflation in terms of price changes of goods and services, if I am talking about currency depreciation, does 'asset price inflation' not count as evidence of such debasement? $\endgroup$
    – Runeaway3
    May 3 at 16:39
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    $\begingroup$ @Runeaway3 no, currency depreciation means currency looses value on foreign exchange market. Depreciation in forex market happens when there is inflation in goods and services, and generally the value of currency depends on general price level not asset prices if anything asset price inflation can even lead to currency appreciation. This is the thing, you can't just substitute asset price inflation for the general inflation and expect the common relationships to hold. If there is an inflation in goods and services then yes ceteris paribus that would devalue currency but in assets? Generally no $\endgroup$
    – 1muflon1
    May 3 at 16:49
  • $\begingroup$ Are homes assets or goods? $\endgroup$
    – user253751
    May 3 at 17:15
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    $\begingroup$ @1muflon1 what if I change my question away from 'depreciation' to general reduction of purchasing power? Is the response still the same? $\endgroup$
    – Runeaway3
    May 3 at 17:18
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    $\begingroup$ @1muflon1 "A washing machine can't appreciate in value?" - how do you know? Did Antonio Stradivari make violins as "investments" that would appreciate in value over hundreds of years? Of course not, he (and all the other instrument makers in Cremona) just sold them to people who wanted to play them. Now, some of them are traded as "investments" by people who never play them at all. $\endgroup$
    – alephzero
    May 4 at 2:29

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