inflation, the future & the 1980s

I'm youngish, born in the 80s and fit into this group watching house prices hoping they lose a bit of value. I'm not a bear, I'm just interested in trying to understand economics and where we stand today - and where we could be in the next 5/10/20 years. Hopefully there's some people out there who understands and has lived through similiar issues to what we have today.

The thing that first got me interested in this was a post on the XJO thread of this chart (click to see a larger version)


The bit that caught my eye was the potential to return to the "early 80's inflation period". I'm not saying this is going to happen but I'd love to know people's thoughts.

Doing some Googling and trying to read and learn as much as possible, here's my very basic understanding of 1980's-like inflation. It basically means the cost of goods go up - food, clothing, rent etc and wages went up to cope with this.

If these consumables rise, my thinking is that materials (eg. wheat/copper etc) would go up as well? I assume this would increase the value of shares, since companies should be making more money.

During this time interest rates went up to try and curb the economy. This meant that house prices decreased and in one example I found "In some of the worst hit mortgage belt suburbs like Deception Bay north east of Brisbane there were near new homes, selling 5 at a time to investors from down south and overseas for between 30% & 50% less than what the first home owners had paid for them"

So in a nutshell, if inflation increases, the cost of goods increas and wages go up however interest rates increase to try and reduce this which therefore brings down the cost of housing. Am I anywhere near the mark?

Please don't shoot me - I'm a newbie at this. All comments are welcome, especially from the more experienced :)