To better understand the negative impact inflation has on our lives, let’s take a look at an example. Say you earn $1,000 per week working at XYZ corporation. Your living expenses consume about 75% of your salary and the remaining 25% goes into savings for retirement or towards your emergency fund. One day your boss informs you that you will be receiving a raise of 10%. From now on you will earn $1,100 per week for the same amount of work. With this extra $100 you can now afford to raise your living standard, buy that luxury piece of clothing, more expensive food, and maybe even move to a more attractive neighborhood. You see no reason not to enhance your lifestyle and thus, what you once considered a luxury becomes your new normal. 

Exactly one year later, your boss invites you into his office to notify you that as a valued employee they will again raise your wage by 10%. This time though, you understand that this doesn't benefit you at all, it is just another step on the inflation ladder.  This spiral has been going on for decades and centuries. Prices escalate and incomes increase but in the broad scope of things everything has just stayed the same with the average family in no better financial position than they were 10 years earlier. In fact, they are often in a much worse position with their more expensive lifestyle consuming more of their income to pay for itself. 

In an attempt to slow this dangerous pattern, the government decides it is time to issue more money to the people in order to assist with higher living costs. This acts as inflation on steroids, often accelerating the cycle instead of diminishing its effects. With more money in their pockets people now feel richer and are willing to pay more and with this dangerous supply-demand imbalance, prices skyrocket even further. 

The same is true for asset prices such as real estate and commodities, only on a much bigger scale. A house that would have once sold for $100,000 is now selling for $200,000. This is due to the reasons mentioned above, both the disproportion in supply-demand and the rising incomes of the middle class.

Despite of all these price increases, federal government economic experts often tell us that inflation is low, they are referring only to inflation with regards to the cost of goods and services. One of the reasons they are allowed to say this because the government mostly monitors inflation in consumer prices and not in asset prices. The consumer price index (CPI) is the pressure gauge the government watches to evaluate inflation but mostly takes into account only goods and services but ignores asset prices and several other components that would exacerbate the inflation issue. The true measure of inflation as it relates to asset prices is much higher than the CPI indicates and only those who own tangible assets are fortunate enough to profit.