Why Life Is So Expensive: What the Inflation Rate Misses

Something strange has happened to money.

Inflation is already high. In June, the Federal Reserve’s preferred measure, the PCE price index, was up 3.7% from a year earlier. Core PCE rose 3.3%, while the Consumer Price Index increased 3.5%. All remain above the Fed’s 2% longer-term goal.

That is not price stability.

And yet those numbers still feel strangely disconnected from daily life.

Ask someone paying for housing, food, insurance and basic services whether life feels only 3.5% more expensive than it did last year.

Most will laugh.

So why does the official number feel smaller than the pressure households are experiencing?

And where did all the money created over the past several years actually go?

Those may be two of the most important investment questions of the next decade.

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What the Inflation Rate Misses

Inflation measures how quickly prices are rising now. It does not erase the increases that already happened.

A family does not experience inflation as an annual percentage. It experiences today’s mortgage payment, grocery bill and insurance premium. Even when inflation slows, prices rarely return to where they started. They simply rise more slowly from a much higher level.

There is another problem. Every household has its own inflation rate.

A family with three children, two vehicles and a large mortgage can be living through a very different inflation crisis than a dual-income couple with no children.

And then there are assets.

Modern households do not respond to extra money by eating twice as much food or buying twice as much toothpaste. Once their basic needs are met, surplus capital moves elsewhere.

Into houses.

Stocks.

Gold.

Land.

Anything scarce that appears capable of preserving wealth.

The scale of the monetary expansion is enormous. U.S. M2 money supply rose from approximately $15.5 trillion in February 2020 to more than $23.1 trillion in June 2026, an increase of roughly 49%.

The new money did not vanish. It raised consumer prices, then helped push capital into assets.

During a recent Pinnacle Digest interview, retired wealth manager Clive Thompson argued that investors should think about monetary inflation as the growth of money supply combined with government debt.

Treasury securities are highly liquid. They can be sold for cash and used as collateral throughout the global financial system, giving government debt some money-like characteristics.

By that broader definition, the monetary expansion behind today’s inflation may be considerably larger than the rise in consumer prices alone suggests.

Why This Matters

Imagine two people.

The first saves diligently in cash. His bank balance rises every year.

The second owns businesses, property, infrastructure or precious metals.

Then the monetary system expands.

The first person still has the same dollars, but the assets he hopes to buy move further away.

The second person appears to become wealthier.

Nothing magical happened.

The measuring stick changed.

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A Four-Part Test for Assets

This does not mean buying everything that rises. Monetary inflation can turn a good asset into a terrible investment when the price becomes absurd.

A more useful approach is to ask four questions before investing.

1. Does it produce cash?

Businesses, infrastructure and rental properties can generate income without requiring a future buyer to pay more.

2. Is it genuinely scarce?

Scarcity must be difficult to reproduce. Land, mineral reserves and essential infrastructure are different from scarcity created by marketing.

3. Can it raise prices?

Strong businesses can pass rising costs to customers without destroying demand. Weak businesses watch their margins disappear.

4. What price are you paying?

A wonderful asset can still produce disappointing returns when purchased at an extreme valuation. Price determines the return.

Cash still has a purpose. It provides liquidity, stability and the ability to act when markets break.

But cash held indefinitely is also a long-term bet on political discipline.

That is a terrible bet to make.

We keep searching for inflation in the grocery aisle while much of the monetary expansion is sitting in the housing market, the stock market and every scarce asset people hope to own.

Inflation hit the cost of living, then moved into the price of wealth itself.

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