The Dow, Adjusted for Inflation

The Dow Jones industrial average broke through 16,000 on Monday for the first time on record â€" well, at least in nominal terms. If you adjust for inflation, technically the highest level was on Jan. 14, 2000 (both for closing price and intraday trading):

Source: Bloomberg. Inflation adjustments done using the consumer price index value from the preceding month.

Adjusted for inflation using the Consumer Price Index value of the preceding month, on that date, the Dow hit the equivalent of 16,285.21 in intraday trading, and 16,247.37 at close. As of the publication of this blog post, the Dow’s highest level on Monday was 16,030.28. We’re approaching the record inflation-adjusted high, but are still not quite there yet.

Here is another presentation of the same data (put together by my colleague Floyd Norris, who helped greatly with this post), showing the nominal percentage change in the Dow since its peak in Jan. 14, 2000, versus the inflation-adjusted percent change since then:

Source: Bloomberg.

Adjusting for price changes, the Dow’s high today was still about 1.3 percent below its close on Jan. 14, 2000 (and about 1.6 percent below its intraday high from that date).

Remember of course that many economists and Wall Street analysts prefer to pay attention to the S.&P. 500, which reflects a much broader set of equities (500, versus just the 30 captured by the Dow). Either way, the recent rise in stock indices is adding fuel to criticism that monetary policy may be inflating asset prices.