Comparing Apples to AAPLs
CPI doesn't measure total inflation — and that's why the middle class is falling behind.
The official inflation rate is 2.9%, according to the US Bureau of Labor Statistics. They call this measure the "Consumer Price Index," or CPI for short. Presumably, it's measured by a labor bureau because household spending is fundamentally a function of household earning—i.e., labor. In theory, they're tracking household economic strength: how costs are rising, with numbers run by the same department that measures wage growth and unemployment. Sensible, by government standards. Which should probably pique your suspicion.
The Basket Case
The Consumer Price Index operates on a simple premise: track the cost of things people buy regularly, weight them by importance, compare them with last year, and you've captured a close approximation of real household inflation. Rent, food, transportation, energy, medical care—the stuff of daily life gets measured with admirable rigor. But household budgets aren't just consumption engines. At least, they're not supposed to be. Crack open any personal finance book and you'll be told time and again that you should be investing for retirement, squirreling away for a rainy day, and saving up for the down payment on a home. None of which shows up in CPI. In fact, the government treats these activities as net-neutral from an inflationary standpoint. They're not, though.
There's a bigger issue. Actual inflation—the way you probably think of it, how far your dollar stretches from one year to the next—is really three different kinds of inflation. If there aren’t enough things available to buy, like when supply chains grind to a halt during a pandemic, you get supply-side inflation. If everyone's preferences for what they want to buy changes suddenly, like with electric cars or homes with a work-from-home office, you get demand-side inflation. Both are set by the market; these are the ones you can blame on capitalism. But there's a third, devious kind of inflation, and it's not a market issue: monetary inflation. When government creates money faster than the economy creates value, that excess has to show up somewhere.
The Mathematics of Monetary Debasement
The United States is currently running deficits that add 7-9% to the money supply annually while achieving roughly 2% real economic growth. That leaves 6% of monetary inflation that needs to be accounted for somewhere. Official CPI claims 2.9%. Most households feel their actual consumption costs rising closer to 4% annually when they factor in shrinkflation, quality deterioration, and the groceries they actually buy rather than the statistical basket. But even acknowledging these costs, which don't show up in inflation numbers at all, we're still left with several percentage points unaccounted for—inflation that's not missing, just hiding in places the CPI doesn't look.
Predominantly, that place is: asset prices. When your dollar loses 6% of its purchasing power annually but only 2.9% shows up in consumer goods, the remaining 3% gets absorbed by everything else: stocks, real estate, collectibles, cryptocurrency, art, gold, and any store of value that can't be easily produced. Economists don't call this "inflation," they call it "asset appreciation." If you're wealthy, you experience it as portfolio gains, at least nominally. But for 90% of Americans, some 300,000,000 people, they experience it as something else entirely. Retirement anxiety, down payments they can never quite afford, and decades on the financial treadmill of keeping up without ever getting ahead.
This isn't academic hairsplitting. It's the difference between measuring the cost of living and the cost of living well.
The Asset Accumulation Penalty
The systematic problem emerges when you try to follow conventional financial advice in an era of asset inflation. You save 15% of your income for retirement, ideally in index funds that track the broad market. But each dollar of that 15% buys you a smaller ownership share of the economy every year. You're working the same hours, producing value with more experience, but able to afford fewer assets—the things that build and preserve wealth. Your account balance grows in dollars while the purchasing power of those dollars declines and your share of the pie shrinks.
The same dynamic plays out everywhere asset accumulation matters. Down payment goals that seemed achievable become moving targets. Emergency funds lose purchasing power as fast as you can build them. Every financial milestone requires more dollars to reach the same effective result.
This isn't financial illiteracy or a lack of discipline—it's the math of monetary inflation, when asset prices inflate faster than wages tied to CPI.
The Systematic Wealth Transfer
What we're witnessing is a massive, ongoing transfer of wealth from wage earners to asset owners. Those who already own stocks, real estate, and other appreciating assets see their net worth inflate automatically. Those dependent on wages—even professional wages—find themselves systematically falling behind in asset ownership.
The middle class gets caught in a particularly vicious trap. They earn too much to qualify for most government assistance but not enough to easily accumulate assets at their inflated prices. They're paying consumption inflation on their daily expenses while facing asset inflation on their long-term investments, while paying taxes to the same government whose deficit spending causes this very problem.
Meanwhile, the measurement system tells them everything is fine. CPI says inflation is manageable. Wage growth statistics suggest they're keeping pace. But their lived experience—feeling financially squeezed despite nominal income increases—tells a different story, and it's right.
The Missing Inflation
The Bureau of Labor Statistics isn't lying about CPI, but they're measuring the wrong thing. Consumer price inflation captures what it costs to maintain your current consumption, but it doesn't represent how many more dollars you actually need to achieve the same financial security as the generation before you.
When Jerome Powell announces that inflation is "under control," he's technically correct about grocery prices. But the math reveals a different story. If we measured inflation honestly—including the cost of building wealth, not just maintaining consumption—the number would be closer to 8% annually. That's the rate at which your dollars are losing purchasing power for the things that actually matter: your retirement account, buying a home, saving for your kids' college funds, and having enough set aside to handle the next economic downturn.
This has profound implications for wage negotiations, investment planning, and retirement projections. Workers asking for 3% raises are requesting real wage cuts. Conservative investors targeting 7% returns are barely treading water. Savers following traditional advice are watching their future security evaporate while being reassured by official government agencies. “Don’t believe your lying eyes.”
The Progressive Paradox
The cruelest irony lies in the political dynamics driving this wealth transfer. Progressive politicians champion deficit spending as compassionate policy—funding social programs, infrastructure investments, and stimulus payments to help struggling Americans. They correctly identify wealth inequality as a critical problem and demand we "tax the rich" to fund their vision of economic justice.
But here's the uncomfortable truth they'd prefer you not notice: the deficit spending they mobilize to help the poor simply enriches the wealthy through asset inflation. Every dollar of deficit spending requires monetary expansion that flows directly into asset prices, creating automatic wealth gains for those who already own stocks, real estate, businesses, and other appreciating assets. That’s why it survives partisan cycles: progressives justify it as compassion, conservatives as growth—but both funnel money upward.
The mechanism is elegant in its perversity. Deficit spending gets funded through money creation, which drives asset inflation, which concentrates wealth among existing asset owners, which creates more inequality, which justifies more deficit spending. It's a perfect closed loop that allows politicians to campaign against wealth inequality while implementing policies that mathematically guarantee its acceleration.
Consider the ultimate beneficiaries of quantitative easing and deficit-funded stimulus. Asset owners—disproportionately wealthy Americans—see their portfolios inflate while wage earners pay the regressive, hidden tax of monetary debasement. Imagine you're a hedge fund manager. You don't care if your gains come from clever picks or monetary inflation—you take your fee off the top, either way. The very programs designed to help working families end up subsidizing the investment portfolios of the affluent, all while maintaining the political cover of compassionate governance, and donations from Wall Street.
This isn't an accident or unintended consequence. It's the inevitable reality of how deficit spending works once you strip away the political theater. What emerges is a system so perfectly designed to concentrate wealth that if you'd set out to engineer elite enrichment while maintaining plausible deniability, you'd struggle to design anything more effective.
A Bite From The Apple
The solution starts with measurement honesty. We need an inflation index that includes essential asset accumulation costs—not just consumer prices. This "Total Inflation Index" would weight assets by their importance to financial security: housing down payments, retirement fund purchasing power, emergency savings adequacy, and healthcare and education costs.
Such an index would reveal what working Americans already know: their dollars buy less financial security each year, regardless of what CPI suggests. It would provide the information households need to demand appropriate wage increases and make rational investment decisions. And it would force honest conversation about the real trade-offs of deficit spending.
Until we acknowledge this measurement gap, we'll continue celebrating "low" consumer inflation while systematically pricing the middle class out of prosperity. The price of apples at the grocery store simply doesn't matter as much as the ones on the NASDAQ. CPI measures the first. Your financial future depends on the second.
The current system serves those who already own assets while misleading those who need to acquire them. That's not a measurement flaw—it's a lie. The largest wealth transfer in American history is being hidden behind the comforting fiction of 2.9% inflation.