What If We’re Measuring Inflation All Wrong?

What If We're Measuring Inflation All Wrong?

Inflation is top of mind right now for many consumers, businesses and investors. Responding to a recent Bank of America survey, asset managers around the world agreed that inflation is the number one market risk, displacing COVID-19 for the first time since February 2020.

Another survey conducted this month found that over three quarters of Americans were either “very” or “somewhat” concerned about inflation. Perhaps not surprisingly, younger Americans who have not yet reached their peak earning years were most worried.

majority of americans are concerned about inflation right now

Loyal readers know I’ve been writing about this topic a lot lately. There are many signs that inflation is already here: Commodity prices are up. Home prices are up. Energy prices are up. Shipping rates are way up. Used cars and trucks are through the roof.

And the trend is only going to accelerate as social distancing is relaxed and the economy steadily returns to “normal.” This week, the Department of Labor reported that initial jobless claims fell to their lowest level in a year. Last Sunday, 1.5 million people boarded commercial flights, the most since lockdowns began.

TSA Checkpoint Crossing Hit a new post-pandemic high

Thanks to “stimmy” checks and unprecedented money printing, real disposable income is set to have its biggest increase ever in any given six-quarter period, says Credit Suisse. The firm expects U.S. consumption to surge an “extreme” 10% this year, triggering a significant jump in new orders and new hiring—all of which is highly inflationary. This month, in fact, U.S. manufacturers reported the sharpest rise in new orders since 2014, according to IHS Markit.  

real disposabble income having perhaps its best six-quarter stretch ever

The Pandemic May Have Made the CPI Obsolete

My question, as always, is whether we’re measuring inflation accurately. What if we’re doing it all wrong? As investors, we want to make decisions based on the best available data, so what should we do if the data is incomplete or flawed?

Here in the U.S., inflation is measured by the consumer price index (CPI), which is updated monthly by the Bureau of Labor Statistics (BLS). The standard way BLS researchers do this is to literally visit stores and ask them for prices.

This approach might seem intuitive, but a recent Bloomberg article lists two fundamental problems.

Number one, the CPI is based on a basket of goods and services that Americans may have spent money on in the past but whose sales suffered during the pandemic. Think entertainment and recreation, restaurants and hotels, new clothes and more.

And two, with thousands of stores and businesses closed over the past year, researchers haven’t been able to make in-person visits, leaving gaping holes in the data. A whole lot of shopping moved online in 2020—as much as $105 billion, according to one estimate—where month-to-month price volatility can be far greater and more rapid.

As International Monetary Fund (IMF) economist Marshall Reinsdorf recently put it: “Spending patterns changed abruptly, and the CPI weight suddenly became obsolete” (emphasis my own).

As a result, there may be a huge amount of inflation that simply isn’t being detected.

The BLS is allegedly considering adjustments to its methodology to account for changing spending habits and preferences—which is one way of admitting that the data it produces is skewed.

But in the meantime, what do we as investors do? One source I’ve turned to again and again is Shadow Government Statistics, or ShadowStats, which provides alternate inflation data based on the pre-1980 and pre-1990 methodologies. Using these methodologies, consumer prices are increasing by 9% or faster, not 1.7%.

A Harvard economist, Alberto Cavallo, interestingly built his own index of goods and services that Americans actually bought during the pandemic, based on credit card transaction data. What this index shows is that inflation has been running slightly hotter than the CPI. In February, it actually surpassed the Federal Reserve’s target inflation rate of 2%.

Inflation measure has already surpassed 2%

Time to Get Exposure to Real Assets?

With prices climbing faster than what’s being reported, investors would be wise, I think, to get exposure to assets that are seeing some of the highest inflation right now and that are in a position to rise even more as the economy expands. That means real assets—metals and minerals, lumber, cement, energy and other commodities and raw materials. As I wrote in February, we may be on the verge of a new commodities supercycle, and it’s not too late to start participating.

That’s especially the case now that President Joe Biden has signaled his next legislative project will be infrastructure. Next week we’re supposed to get further details on his proposed $3 trillion spending package, but from what I’ve seen, $1 trillion of that will be devoted to improving roads, bridges, rail lines, ports, electric grids and more.   

There’s much work to be done, after all. The American Society of Civil Engineers (ASCE) recently gave U.S. infrastructure a C- and estimated the investment gap to be as high as $2.6 trillion.

Treasury Secretary Janet Yellen told the House this week that taxes will likely need to be raised to pay for such a large-scale operation. All the more reason to rotate into commodities and the companies that produce them.

Gold Miners Recorded Record High Margins Last Year

That includes gold and gold miners. Last year, producers had their most profitable year ever, with average all-in sustaining cost (AISC) margins hitting a record $828 per ounce, according to Metals Focus. The AISC margin is defined as the gold price minus the cost to produce it. In other words, for every ounce of gold a mining company produced in 2020, it got to pocket $828 on average. This is comfortably higher than the previous record of $666 set in 2011.

Gold miners achieved record high margins in 2020

The price of gold hit a record high of $2,075, which helped increase revenues. But companies have also been focused on cost discipline. We haven’t yet seen exploration budgets go on significantly.

The producer with the world’s lowest cost per ounce in 2020 was Polyus, according to Kitco News. The Russian miner’s AISC was only $604/oz. Among other companies in the top 10 were B2Gold ($788/oz), Centerra Gold ($799/oz), Kirkland Lake ($800/oz) and Polymetal ($874/oz).

Precious metal royalty and streaming companies also had a strong 2020. The world’s largest by market cap, Franco-Nevada, reported phenomenal results: record revenue of $1 billion, record net income of $326 million and record cash flow of $840 million. In addition, the company declared a quarterly dividend of $0.30 per share, a 15% increase from the prior dividend of $0.26.

Wheaton Precious Metals also reported strong 2020 results, with net income up triple digits compared to 2019. Annual revenue of $1 billion and annual operating cash flow of $765 million were both records for the company.

Email us at [email protected] to receive even more information on gold royalty companies!



Gold Market

This week spot gold closed the week at $1,732.52, down $12.71 per ounce, or 0.73%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 3.27%. The S&P/TSX Venture Index came in off 5.44%. The U.S. Trade-Weighted Dollar rose 0.88%.

Date Event Survey Actual Prior
Mar-23 New Home Sales 870k 775k 948k
Mar-24 Durable Goods Orders 0.5% -1.1% 3.5%
Mar-24 Hong Kong Exports YoY 28.4% 30.4% 44.0%
Mar-25 Initial Jobless Claims 730k 684k 781k
Mar-25 GDP Annualized QoQ 4.1% 4.3% 4.1%
Mar-30 Germany CPI YoY 1.7% 1.3%
Mar-30 Conf Board Consumer Confidence 96.0 91.3
Mar-31 Eurozone CPI Core YoY 1.1% 1.1%
Mar-31 ADP Employment Change 525k 117k
Mar-31 Caixin China PMI Mfg 51.3 50.9
Apr-01 Initial Jobless Claims 678k 684k
Apr-01 ISM Manufacturing 61.0 60.8
Apr-02 Change in Nonfarm Payrolls 628k 379k



  • The best performing precious metal for the week was palladium, up 1.47% with supplies expected to remain tight with Norilsk Nickel reduced production. There is a precious metal outperforming Bitcoin so far this year – have you heard of it? Iridium, which is a byproduct of producing platinum and palladium, is up 131% since the start of January, outpacing Bitcoin’s 85% gain. Demand for the metal, one of the rarest precious metals, has surged over the past 12 months for use in electronic screens. Iridium, which is also used in spark plugs, has climbed to $6,000 an ounce, according to Johnson Matthey Plc data.
  • GV Gold PJSC, a Russian gold miner that BlackRock owns 18% of, set a price range for its IPO in Moscow that values the company at as much as $1.5 billion, reports Bloomberg. Trading is expected to begin on March 30. GV Gold, also known as Vysochaishy, said on March 15 that a group of shareholders including BlackRock planned to sell shares. They offered a combined stake of about 37%, which would mean a sale of as much as $555 million.
  • Gold steadied on Wednesday after two days of declines after Fed Chair Jerome Powell played down concerns of out-of-control inflation. “From a technical perspective, the medium term remains negative but the pressure from sellers is slowing down,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades. Spot gold rose 0.2% to $1,731.28 an ounce by 12:06 p.m. in London, after falling 1% over the prior two days.


  • The worst performing precious metal for the week was silver, down 4.52% on little news. Gold continues to lose investors. Total gold held by ETFs has fallen 6% this year to 100.3 million ounces after 67,509 ounces of outflows on Thursday. According to Bloomberg data, ETFs also cut silver from their holdings for the fourth straight day.
  • Gold prices are down 9% so far this year and saw a weekly loss after two weeks prior of gains. The yellow metal still fell for the week even as bond yields halted their advance, under pressure from a dollar strengthening on the success of the U.S. vaccine program.

Gold heads for weekly drop to snap two straight weeks of gains

  • Metalla Royalty & Streaming announced two separate royalty acquisitions this week. Metalla completed the acquisition of an existing 0.5% NSA royalty on a portion of Barrick Gold’s Alturas-Del Carmen project and an existing 0.45% NSR royalty on Agnico Eagle Mines’ and Kirkland Lake Gold’s North AK property in Kirkland Lake, Ontario. Wheaton Precious Metals announced it will purchase 100% of the payable gold production at the Santo Domingo project owned by Capstone Mining Corp. until 285,000 ounces have been delivered.


  • Platinum-group metals mining executives and investors gathered for a virtual conference to discuss the industry’s future this week, reports Bloomberg. Anglo American Platinum CEO Natascha Viljoen said rhodium demand will remain strong in the short-term due to the metal’s ability to cut emissions from vehicles. Impala Platinum Holdings CEO Nico Muller said many of South Africa’s underground mines may be closed over the next decade, which would strain supply and further boost prices.
  • Sibanye Stillwater’s CEO Neal Froneman said in an interview this week that “the gold industry needs to be consolidated, so you can either lead the consolidation or you will be consolidated.” Froneman says he wants to refocus Sibanye back toward gold and that other South African miners AngloGold Ashanti and Gold Fields would both fit with the company’s acquisition strategy. Sibanye hopes gold to get back to 40% to 50% of its earnings to ensure sustainable dividends.
  • Metalla Royalty & Streaming announced two separate royalty acquisitions this week. Metalla completed the acquisition of an existing 0.5% NSA royalty on a portion of Barrick Gold’s Alturas-Del Carmen project and an existing 0.45% NSR royalty on Agnico Eagle Mines’ and Kirkland Lake Gold’s North AK property in Kirkland Lake, Ontario. Wheaton Precious Metals announced it will purchase 100% of the payable gold production at the Santo Domingo project owned by Capstone Mining Corp. until 285,000 ounces have been delivered.


  • Peru’s front-runner for the presidency said they are ready to take a tougher stance against mining companies to ensure more of the revenue generated from its mineral wealth stays in the country, reports Bloomberg. “Unfortunately, they are not leaving us the resources that they should,” Yonhy Lescano said of the mining sector, “and that has been hurting us.” This is a major threat to miners operating in Peru.
  • Jaguar Mining, a Canadian gold producer and explorer in Brazil, said it expects production to be disrupted due to a surge in COVID cases limiting contractors.  The company said in a statement that “the current increase in the intensity of our Covid-19 measures, as dictated by government guidelines and the pandemic, may also limit production in the near term.” Bloomberg notes that Brazil has seen the highest level of COVID cases in the first quarter of 2021. This is a reminder that the global pandemic is not over and there is still potential for disruptions.
  • The London Metal Exchange (LME) is facing backlash after issuing a consultation document to participants recommending permanently closing its open-outcry, reports Kitco News. Traders have been using hand signals and face-to-face “ring” trading for 144 years, but due to the pandemic the exchange was temporarily closed with all trading done over the phone or online. Most major exchanges have moved toward this direction of online trading through a platform for some time and many are asking how long the traders at the LME can hold out.


Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 1.36%. The S&P 500 Stock Index rose 1.57%, while the Nasdaq Composite fell 0.58%. The Russell 2000 small capitalization index lost 2.89% this week.
  • The Hang Seng Composite lost 2.26% this week; while Taiwan was up 1.47% and the KOSPI rose 0.05%.
  • The 10-year Treasury bond yield lost 5 basis points to 1.673%.

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Dent, rising 157.48%.
  • Tesla Inc. announced that it will start accepting Bitcoin as payment for its electric cars and that it will only use internal and open-source software and any Bitcoin paid to the company will be retained as Bitcoin and not converted into a fiat currency. Currently only U.S. customers can pay for a Tesla vehicle using Bitcoin, with functionality being extended to non-U.S. customers later this year.
  • At the Bank of International Settlements seminar, the director of the Digital Currency Research Institute at the People’s Bank of China (PBoC) said that the digital yuan, which is currently being trialed in the country, is necessary to provide backup to Alipay and WeChat Pay, which account for 98% of the mobile payments market in the country. Mu Changchun, the director, stated that if the systems of Alipay or WeChat Pay were to face any issues, either financial or technical, it could have a negative impact on the stability of China’s financial system. The PBoC has also proposed a set of global rules for monitoring central bank digital currencies (CBDCs).  


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Avalanche, down 22.14%.
  • Bitcoin’s worst selloff since December has dropped Grayscale Bitcoin Trust’s (GBTC) discount to a record 20%. This week alone, the trust has dropped 20% while Bitcoin dropped just over 10%. This record discount and GBTC’s free-fall highlights the extent to which the latest leg of retail-driven crypto enthusiasm is cooling. GBTC has traded at a premium to its net asset value since launching but has dropped into the discount range since last week of February 2021.
  • The chart below showcases the heavy short positions taken by hedge funds on Bitcoin futures, signaling that they believe the current surge in the world’s biggest cryptocurrency will end even as it set a record high less than two weeks ago. As Bitcoin passed $60,000 this month, the chart shows that hedge funds closed out their long positions and increased their short positions.


You can read the remainder of the article at https://www.usfunds.com/investor-library/investor-alert/what-if-were-measuring-inflation-all-wrong/

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors