The Truth About Inflation: How Your Earnings Are Getting Eroded

Inflation is eating away at all of our wages year over year. In fact, if inflation were to stay at 9% for 7 years consecutively, you would have a 50% haircut on your total earnings for the year. So, I’m going to be going over the exact way they are skewing the inflation numbers, CPI numbers, to make it seem like inflation is much lower than it actually is. Welcome back. If you’re new to the channel, my name is Matt Jimenez. I am an entrepreneur who has been able to work with the greatest minds in finance over the last four to five years just via my online business. So, CPI is Consumer Price Index, and this number comes out every month. What they are trying to do is gauge the rate of inflation and how much the people are actually feeling it. Unfortunately, a lot of the numbers are skewed, and most of the time, they are excluding food and energy, which are the two main things that are the most subject to inflation. The reason why they do that is because they say that food is too volatile and energy is too volatile, which I’m sure you guys feel if you look at beef. Beef is up probably around 32% last time I checked, and gas prices feel like they’re going up 20% every week.

The Bureau of Labor Statistics, this is the organization that reports the CPI numbers for us. Back in the 80s and the 90s, they moved the CPI scale from a cost of goods index to a cost of living index. But the problem is when you measure it on a cost of living index, they’re not measuring the substitution. Let’s say that you are allergic to gluten or many other allergies that are out there, and you are almost forced to buy certain foods that tend to be more expensive because it’s a higher quality. But now when you measure it on a cost of living index, they’re not measuring the substitution, so you may opt for a cheaper product, but now you’re diminishing your quality of life. So the cost of goods index will only measure that basket and does not include the substitution that we need in order to have the returns on our health or the quality of our life.

Now, in the cost of living index, they just care that you have the product. For instance, myself, I like to have very minimally processed things, and I like to have beef that is grass-fed and grass-finished. Now, let’s say that is $10 per pound, but I can’t afford it. So, I would opt for a cheaper product, which is not grass-fed or grass-finished, nor is organic, and it’s probably pumped with tons of antibiotics and hormones. So now, for me to keep my cost of living low, I opt for a cheaper quality of beef, overall affecting my quality of life.

The way that they can skew the data is they just make sure that they don’t include the changes of substitution. Substitution will always have the biggest impact on your life because the things that you opt for are the things that you want to optimize in your life. So, if you’re not taking into account that just to keep the number of the cost per living index down, now we’re having a lesser quality of life.

Here we have the Bureau of Labor Statistics on this website. You can actually track all the things that you need to know about the CPI. You can go to previous data, you go to publications, things are revolved around it about CPI, etc., etc. Another place where you can track this data is called Forex Factory, where you will get all the news releases related to financial news, where you can prepare for volatility in the markets. I keep a heavy eye on this exact website right here, and in fact, the reason why I’m talking about CPI is because Tuesday, November 14th, we are actually going to get the CPI numbers. So, we have the core, and then we have the CPI for the months and CPI for the year projection. Keeping track of these, you could always hit the folder and see where it was previously and what they…

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Jeff Sekinger

Founder & CEO, Nurp LLC

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