There’s been a lot of talk about inflation lately…
And while government officials and monetary policymakers keep saying price spikes are temporary and transitory, here’s the truth…
Nobody – including the White House and the Federal Reserve – knows how the current trend will play out from here.
Economics is as much about human psychology as it is about crunching numbers.
Human behavior is notoriously hard to pin down.
What’s more, the government’s official inflation numbers have always been flawed.
I’ll give you several reasons why in just a minute. Plus, I’ll show one of our favorite ways to stay ahead of inflation…
But let’s start with an even bigger problem…
A Maze of Metrics
You’ve probably heard about the Consumer Price Index (CPI)… That’s the government’s official inflation measure.
Generally speaking, the CPI measures the average change in prices that consumers pay for a specific selection of goods and services over a period of time.
So, if the CPI rises over a short period of time, it’s a sign of price inflation… meaning your dollars buy less… while a falling CPI is an indicator of price deflation. So your dollars buy more.
However, there are many different versions of the CPI.
There’s the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which is the version that determines cost-of-living adjustments for Social Security and federal retirement benefits…
There’s also the CPI for All Urban Consumers (CPI-U), which measures price changes in urban areas of 2,500 people or more, and is used when adjusting the returns on Treasury Inflation-Protected Securities (TIPs) and I-bonds…
Then there’s the CPI for All Urban Consumers: All Items Less Food and Energy, which is commonly called “core CPI.”
As the name suggests, it’s the same thing as the CPI-U, except it doesn’t factor in price changes for food and energy.
Economists love using that last one because it strips out two of the most volatile components. Never mind that the volatility is actually happening or that food and energy are significant parts of the typical American budget.
Confused yet? Well, it gets worse…
There’s also the CPI for the Elderly (CPI-E), which is designed to track expenses for households run by people 62 and over. And there’s even something called “chained CPI.”
I won’t get into the weeds on chained CPI.
But it tends to report even lower inflation rates because it magnifies some of the inherent flaws already in the government’s methodology.
This brings me to…
What Do Inflation Measures Really Measure?
Let’s say you go to the grocery store looking to buy a filet mignon and discover that the price is up $3 a pound from last week.
The government’s inflation measures assume you’ll just switch to flank steaks in a process called “substitution bias.”
That’s problematic because it means the index isn’t consistently measuring price changes on one single item over time…
But what’s worse is that chained CPI allows for “upper-level” substitutions across entire categories – i.e., substituting chicken for beef.
Now, I can’t see myself going to the store for filet mignon and happily coming back with a dozen chicken wings instead.
But in Washington’s mind, I’m not really any worse off.
And here’s another head-scratcher…
When it comes to measuring housing costs, the different types of CPI haven’t used actual home prices since 1983.
Instead, they use something called “rental equivalence.”
Basically, the government asks homeowners how much they think people would pay to rent their houses… then asks actual renters how much they’re paying… and then comes up with a number for every geographic area.
Never mind that the first half of those responses are just opinions…
Or that some geographic areas have rent controls, which would artificially suppress results.
And CPI measures also don’t factor in the effects of rising federal, state, or local taxes.
I could keep going… But you get the idea: Even the data that lawmakers and policymakers use doesn’t necessarily match up with our real-world experiences.
If anything, systematically under-reporting inflation is in Washington’s best interest because it can save them many billions a year on inflation-based payments like social security.
So, whenever you hear a policy wonk telling you not to worry about rising prices, you shouldn’t accept that at face value…
You Need to Protect Your Buying Power
Through last month, CPI-U was running at 5.4% year over year… the largest 12-month increase since August of 2008.
Even if the official government inflation measures are flawed and confusing, nearly everyone agrees that inflation has been running hotter than usual.
So right now, it makes sense to continue taking steps to protect your buying power.
Worst case, you’ll be ahead of the curve as “normal” inflation continues to erode your wealth… And if the inflation we’re seeing continues longer, you’ll protect your wealth long term.
At PBRG, one of our favorite hedges against inflation is Tech Royalties. They’re a way to earn income from your crypto assets.
To earn Tech Royalties, you deposit your crypto assets on a crypto platform. In return, you receive more of that crypto as a reward.
It’s like earning interest from a bank account. But the interest you earn on crypto platforms is much, much higher.
That’s because, like banks, crypto platforms accept deposits and make loans. But the increased risk of holding crypto over cash is why they can compensate depositors with higher yields.
For instance, rates on crypto platforms like Celsius, Ledn, and Nexo can go as high as 17.8%.
That’s 297 times higher than what you’ll get in a traditional savings account, and it’s 14 times the 10-year Treasury bond.
More importantly, that yield is more than three times the current rate of inflation.
Plus, Tech Royalties are paid in more crypto. So your rewards will appreciate at the same rate as the underlying token. For instance, we’ve seen gains of 3,929%, 4,679%, and 17,727% on our Tech Royalty positions.
These high yields make Tech Royalties the perfect way to stay ahead of inflation. And because cryptos can see staggering price appreciation… you can set yourself up for potential life-changing gains.
Be Wary, Prepare Now
The CPI may be a good indicator of inflation in general… For instance, is the price of goods going up or down?
But by the time we can conclusively say that the current bout of inflation will be long term… a lot of damage will already be done.
So be wary of the government’s inflation numbers, and make sure you’re prepared for inflation – whether it’s short term or here to stay.
Inflation-proof investments like Tech Royalties can beat the interest you’d earn from a savings account or treasury bond… and pay healthy yields in times of deflation, too.
Just remember, extra yield comes with extra risk. These platforms are not FDIC-insured or backed by the U.S. government.
Always remember, be smart about your individual crypto position-sizing. And don’t put all your crypto assets on one platform.
Best wishes,
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Nilus Mattive
Analyst, Palm Beach Daily
P.S. As more investors turn to Tech Royalties and crypto as a safe haven from inflation, a $30 trillion blockchain revolution is taking off…
And at its current pace, Teeka believes it’ll be like buying Microsoft in the ‘80s or bitcoin in 2010.
To learn more about what Daily editor Teeka Tiwari calls his “No. 1 Investment of the Decade,” click here.