Money's Real Value: A Faster Rate of Devaluation?

The way we measure inflation may be misleading.

Headline inflation, known as the consumer price index (CPI), suggests that money loses half its value every 30 years. However, a different estimate points to a much faster rate of devaluation: approximately every 13 years.

This discrepancy is evident when looking at the price growth of assets not included in the CPI basket. Gold has outperformed most major asset classes over the past century and serves as a proxy for money's real value, implicitly replacing gold before the gold standard ended in 1971. The metal's price indicates that money loses half its value roughly every seven years.

The CPI likely understates inflation because it only tracks a fixed basket of consumer goods rather than assets. Statistics Canada's CPI does not account for capital appreciation on existing homes, and it reflects forces moving in opposite directions: technology and productivity can push prices down while monetary expansion and other factors push them up.