Inflation Numbers May Be Misleading: Experts Warn of Faster Money Devaluation

The way we think about inflation might be outdated, according to some experts. The Consumer Price Index (CPI) is often used as a benchmark for measuring inflation, but it may not accurately reflect how quickly money loses its purchasing power. One study suggests that the true rate of inflation could be significantly higher than what the CPI indicates.

Gold has been used as a proxy for money's real value, and its price over the past 20 years shows an average annual growth rate of over 10.3%. This implies that money loses half its value roughly every seven years. However, this estimate should be taken as an upper-bound illustration, as gold's price also reflects other factors such as safe-haven demand and central-bank purchasing.

Statistics Canada's CPI only tracks a fixed basket of consumer goods, excluding assets like housing or investments in the stock market. This means that it may not capture the full extent of inflation's impact on money's value. One alternative measure is to look at money-supply growth relative to real economic growth. Over the past 20 years, Canada's M2 has grown at a rate of roughly 7.3% annually, while subtracting real GDP growth leaves a difference of about 5.5% annually.

This measure, known as excess money growth, is not an official measure of inflation but can provide insight into the relationship between monetary expansion and asset prices. However, it's essential to note that the concept itself is not without controversy, and various factors such as money velocity and interest rates complicate its application.