Bitcoin and the changing definition of CPI

The constant adjustments to the inflation gauge are misleading and confusing for those looking for a solid store of value.

The following is the definition of consumer price index (CPI) by the US Bureau of Labor Statistics:

“The CPI represents changes in the price of all goods and services purchased for consumption by urban households. Usage fees (such as water and sewage services) as well as sales and consumption taxes paid by the consumer are also included. Income taxes and fixed assets (such as stocks, bonds and life insurance) are not included. “- US Bureau of Labor Statistics

However, the definition was different 20 years ago. Shadowstats goes deeper here. The current CPI is simply based on a shopping cart as defined by the BLS. It doesn’t directly reflect inflation as there are many other assets that hold the money supply. So the shopping cart on which the CPI is based seems a bit arbitrary. To investigate this, we will examine the ancient methods that were used to calculate the CPI before 1980.

Shadow statistics 1980-based inflation

In 2011, CNBC published an article on the Shadowstats website and found that the inflation calculation is very different from that of the current post-great recession CPI. According to Shadowstats, inflation is much closer to 10% based on the methods the Bureau of Labor Statistics used to calculate it in 1980.

Image via

This is much higher than the Federal Reserve’s (Fed’s) 1% -2% target, and it begs the question of whether the dollar, while the strongest currency in over a century, might not be as strong as that Fed makes us believe.

Asset Inflation and Democratization of Technology

The CPI does not include homes or other assets that we use to store our wealth. This is important because goods aren’t the only place people put their money. Instead, many people turn to stocks, real estate, gold, and other financial instruments as a means of saving, sometimes because they have no choice and are forced into higher-growth assets.

The official inflation rate based on CPI was 1.6% in 2000, but the average US home price rose 12.8% and stocks, as measured by the S&P 500, rose 16.3%. Some of these assets have risen in price despite the stalemate and economic restraints ravaging the economy. In response, the US government decided to mint checks and mail them to people in need, but the majority of Americans received checks while they were still employed. That excess money went into bitcoin, stocks, and real estate.

When people take their freshly minted dollars and toss them into stocks to keep their fortunes, the valuations of the stocks don’t go up because the stocks are good. It simply expands the total market for the amount of new dollars. This is known as wealth inflation. If assets were to appreciate in value without changing the money supply, that would be a different story. That’s not the case.

The following figure shows how US consumer goods prices have changed over the years. Price dispersion can be related to a number of different factors, but we can simplify one of them by better understanding democratization. The Cantillon Effect explains how monetary inflation affects certain item baskets.

Image via

The reason many items (that is, items that are below the inflation line) have become more affordable is because technology is inherently deflationary. This is also known as the democratization of technology. The definition states that the production of a technology becomes cheaper if more of it is produced. For example, even though manufacturers are better at making televisions and cell phones, the money supply is still high. Hence, money supply inflation is dramatically offset by the deflationary nature of production and technological innovation. It may even be one of the fundamental truths of capitalism: competition drives innovation, and prices of goods fall over time.

Money inflation and money supply

Since Shadowstats focuses on defining CPI in the 1980s and asset inflation seems to be ubiquitous, there has to be another straightforward way to calculate inflation.

* M2 has entered the chat *

According to, M2 measures the amount of currency in circulation, and the measurement has grown historically during wartime and recessions. In 2020-2021, M2 grew by more than 27% and was recently discontinued as an official statistic. This metric seems the closest of anything we have to measure money inflation, but it was discontinued at the point where it showed the greatest weakness.

Image via

If M2 measures the amount of currency in circulation, the amount of money in existence has increased by 25% in 2020-2021. Wherever this inflation shows up, your energy is drained from your dollar amount and pushed elsewhere. The dollar is not a good store of value; Most investors could have told you that. As is well known, Ray Dalio said shortly before the pandemic began that “cash is rubbish”. If so, where can you keep your hard-earned money protected from inflation?

Saving energy with Bitcoin

The Fed bases its policy on how close the economy is to 2% inflation based on the CPI. In the eyes of the Fed, inflation is under control, although old metrics show extreme levels of inflation and monetary inflation of almost 25%. According to Michael Saylor, money inflation is expected to be 15-20% year over year over the next five years in response to the pandemic.

So, when the entire Fed and government are using one monetary measurement tool that leaves out large chunks of the economy, there are a few questions you can ask to see why this may be the case. Money is the energy saved into a transferable instrument and people look for the instrument that best holds its value.

Bitcoin has a strict monetary policy with an exponential decline in inflation. Every 4 years the amount of Bitcoin mined is halved, which leads to a hardening effect.

Image via

You can never print more bitcoin if you don’t mine it, and there will never be more than 21 million. Even gold has an inflation rate of almost 2%. However, the main difference between dollars, gold and bitcoin is that the provision of bitcoin can be verified easily and automatically. In the past, the Fed has refused to be examined. Bitcoin is not only extremely verifiable with a transparent blockchain, but is checked every 10 minutes with every block. Everyone has the same copy of the network and it is checked forever every hour of every day, 365 days / year.

Bitcoin is the rarest, most verifiable and sovereign technology ever developed. It continues to manifest in different ways, but has become a monetary anchor during the 2020-2021 pandemic, at a time when monetary expansion seems to be infinite. Bitcoin adoption will continue to grow and demand will continue to grow exponentially as suggested by Metcalfe Law. Bitcoin is the scarcest commodity in the world and a way to sustain your energy production without fear of exploitation or excessive supply expansion.

This is a guest post by Mitch Klee. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

Comments are closed.