The Real Extent Of Modern Inflation – Why We Need To Preserve Our Wealth

Inflation has been a hot topic of late, with many debating whether or not all of that money-printing by governments in response to COVID-19 is going to translate into high levels of inflation for everyday things in the short-run – especially in the United States.

There is a couple of different view on this. Those arguing that we won’t see inflation refer mostly to recent history in the official Consumer Price Index (CPI) inflation numbers.

But is this a good measure of true inflation, and will it even hold steady at the levels of money printing we’re seeing now?

I argue that the answer is a resounding “no”. Let’s take a look at why:

What is the CPI?

The Consumer Price Index (CPI) is the “official” measure of inflation within a country, which is used by governments and businesses to make adjustments to things like wages and benefit payments. In theory, these adjustments allow people’s incomes to keep up with the gradual inflation that affects their overall expenses.

It’s calculated by examining the prices of a basket of goods and services that are considered essential for most citizens of a country and averaging out the increase in prices over the course of each year.

Problems with the CPI

CPI values over the last decade or so for developed countries like Australia and the United States have steadily remained between zero and 2.5% or so – but many (including myself) argue that this is simply not accurate.

If wage increases have indeed kept up so well with the inflation in prices of goods and services, then covering expenses today should be just as easy as doing so ten years ago. For the vast majority of people, however, this is not the case.

In fact, people argue that the CPI is so flawed and inaccurate, that they’ve gone as far as creating new alternative indexes to measure true inflation.

The Chapwood Index

Perhaps the best alternative to the CPI is the Chapwood Index, which was created to put an end to poor financial planning made by those relying on CPI numbers.

Ed Butowsky, who created the index, theorised that most people based their lives on beating CPI levels of inflation (which is usually reported to be around 2%), when in fact the true level of inflation was substantially higher. This meant that even if people increased their incomes by more than 2% per year, they were likely still to fall behind on covering their expenses on a yearly basis.

As we all know, compounding interest is a powerful phenomenon – but in this case, it’s working against us as our real cost of living increases year after year.

By using the real prices of goods and services based on individual cities, Butowsky revealed that real rates of inflation in top-10 US cities have been between 8% to 13% per year, over the last 5 years.

Compared to the CPI’s average of around 2%, that’s a massive difference! It’s also very likely that these figures are similar in many developed parts of the world, including Australia and the UK.

Hedging against inflation – Bitcoin

It’s becoming clearer to see that inflation is not just a very real problem, but it’s actively being downplayed by inaccurate reporting data.

Reliable alternative stores of wealth are becoming more important than ever, as fiat currency holders watch their wealth evaporate year after year. Being safer than gold and outperforming other assets, Bitcoin continues to cement itself as one of the most secure, scarce, and reliable options available.

Some large companies such as MicroStrategy have already caught onto this and acted swiftly, investing more than a billion dollars of cash reserves into Bitcoin.

It’s my view that many more large players are going to follow suit, resulting into a windfall of fiat currency pouring into Crypto.

Taking action to preserve your wealth and riding the Bitcoin wave is only a few clicks away – don’t let the opportunity slip!