Billionaire investor Ron Baron says inflation will propel major stock gains in the coming decades but everything will be ‘twice as expensive’

• The billionaire investor Ron Baron told CNBC that the Dow could surpass 900,000 in 50 years.

• The veteran investor said persistent inflation could fuel economic growth.

• He said higher prices could bring major stock gains but might make everything “twice as expensive.”

The billionaire investor Ron Baron said stocks were in for major gains in the next half-century because of persistent inflation that would make everything “twice as expensive.”

The Baron Capital CEO spoke with CNBC on Saturday about increasingly bearish sentiment in the market and investors fretting over a potential recession, higher interest rates, and geopolitical headwinds.

But those risks are irrelevant to the overall trajectory of the market, which has been moving upward for most of the past half-century, Baron said. Despite various wars, recessions, and pandemics spanning the past several decades, Baron estimated that stocks were 34 times their value in 1970. Economic growth also soared during that period, with GDP notching $26 trillion last quarter, up from $1 trillion in 1970.

Baron said economic growth in the US would continue to accelerate, blowing past 7% in the next 50 years.

“I expect inflation to be as it always has been, as it always has been in every single democracy that’s ever existed, 4-5% year,” Baron said. “That means you’re going to have 35 times your money over the next 50 years. That means that the Dow Jones, which is now 34,000, will be 900,000,” he later added, assuming growth notched at least 7%.

Other experts have noted that elevated inflation could fuel stock gains, as higher prices lead to higher corporate earnings. On the flip side, it could lead to more pain for consumers:

“I think everything is going to be twice as expensive in 14, 15 years,” Baron said. “Maybe it will go a little bit lower, but it’s not going to stay lower,” he said of inflation.

Prices clocked in at 4% in the May Consumer Price Index report, down from a 41-year-high in the middle of last year but still well above the Fed’s 2% target. Officials have suggested interest rates could remain tight until the central bank gets a handle on inflation, though higher rates could weigh on asset prices.

Investors are pricing in a 72% chance the Fed will raise rates another 25 basis points at their July policy meeting, according to the CME FedWatch tool. That move would lift the Fed funds rate target range to 5.25-5.5%, the highest rate since 2007.

Read the original article on Business Insider