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Why Smart Investors Move WITH Inflation

The mainstream news likes to throw around a lot of fancy metrics that describe inflation, followed by lengthy editorializing about what it all means.

While these metrics can indeed offer occasional insights into what’s happening in the economy, the reality is that they often fall short of providing anything genuinely useful for investors.

I thought I’d start by defining the four major metrics you’ll see in the news (which, let’s be honest, often sound technical and confusing). 

But then I follow it up with something a lot more useful: an interview with our co-founder Nick Hodge about what actually matters for your money.

Here’s a short summary of the terms you’ll see…

  • Consumer Price Index (CPI) - CPI tracks the average American shopping cart: a dynamic measure that calculates what it costs to buy a basket of goods. The CPI is based on monthly data from approximately 4,000 houses and 26,000 retail establishments in 87 different urban areas. The CPI isn’t just about numbers, but real-world impact — it’s meant to provide a snapshot of how price changes are affecting the pocketbooks of everyday Americans. (Unfortunately, its accuracy in this task remains questionable. Also: they really do mean ‘urban.’ It misses price impacts in the rural expanses of mainland America. So take its measurements with a grain of salt.)
  • Producer Price Index (PPI) - The PPI covers the business side of price trends. This index gauges the average change over time in the selling prices received by domestic producers for their output. It’s a peek backstage to the cost world of manufacturing and production, with the goal of offering insights long before price changes reach the consumer.
  • Gross Domestic Product (GDP) Deflator - GDP isn’t a useful metric if you can’t reliably compare numbers from year-to-year, which is where the Deflator comes in. It’s calculated to reflect a universal vantage point that offsets the changing value of the dollar. GDP counts the value of all finished goods and services produced within a country's borders, and the Deflator adjusts these numbers as tracked by dollar value, giving a more accurate picture of an economy's health over time. 
  • Personal Consumption Expenditures (PCE) Price Index - The PCE is a much broader metric than the CPI. It takes a deep dive into spending patterns over a wide variety of expenditures. Its main purpose is to spot changes in overall consumption patterns. If the CPI is the snapshot, the PCE is the panorama.

This Investing U episode shows you how to move your portfolio WITH inflation to protect your wealth.

As you’ll hear: the measure that matters most is how effectively you can grow (and protect) your own money in uncertain times.

Why Smart Investors Move WITH Inflation

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