The Real Inflation Story
Why Your Wallet Feels Lighter Than Official Numbers Suggest
Most Americans instinctively know that something doesn’t add up when it comes to inflation. They go to the grocery store, fill up at the pump, or try to buy a car—and feel the pinch in a way that doesn’t match the “official” inflation numbers. According to the Bureau of Labor Statistics (BLS), inflation is moderating. According to your wallet? Not so much.
That disconnect is exactly what economist John Williams of ShadowStats has been warning about for decades. Williams argues that government inflation data has been massaged through decades of "methodological adjustments" that consistently understate the true rate of inflation. And if he's right, the implications for savers, retirees, and anyone trying to build wealth in today’s economy are enormous.
Measuring Apples to Oranges
Back in the 1980s and 1990s, the government changed how it calculates the Consumer Price Index (CPI). These changes were marketed as improvements—introducing “hedonic adjustments,” substitution models, and geometric weighting. But Williams argues that these tweaks distort reality. Instead of showing what it actually costs to maintain a constant standard of living, the CPI now shows how consumers might adapt to higher costs (i.e., buying hamburger instead of steak).
In other words, the inflation index no longer measures inflation as a rise in the cost of living—it measures a shift in survival strategies.
According to ShadowStats’ alternate CPI model, using 1980-based methodology, true annual inflation in recent years has often been closer to 8–12%—far higher than the official reports of 2–4%. That helps explain why so many households feel like they’re treading water or falling behind even when the headlines say otherwise.
The Hidden Tax on Your Wealth
If you accept Williams’ view—and I believe there’s a strong case for doing so—it means that inflation is not just a little higher than reported. It’s a stealth tax eroding your purchasing power and savings every single year. Fixed incomes aren’t keeping up. Cash is losing value. And traditional portfolio models that rely on low inflation assumptions may be dangerously outdated.
As an advisor, I don’t rely blindly on the CPI when building retirement income plans. I look at real-world costs—healthcare, food, insurance, energy—and the way people actually live. And I believe John Williams has done investors a service by refusing to let the inflation debate get swept under the rug.
Why This Matters Now More Than Ever
If the official CPI numbers are dramatically understating the true rate of inflation—as John Williams’ ShadowStats suggests—then the consequences for everyday Americans and retirees are profound. Retirement projections built on the assumption of 2–3% inflation may be dangerously flawed if the real cost of living is increasing at 6–10% annually. Over the course of a 20-year retirement, that discrepancy can erode half of a your purchasing power.
This isn’t just an academic issue—it’s a real-world problem that impacts how much income you need, how long your nest egg will last, and whether your lifestyle remains stable or slowly declines. Too many investment plans are still being managed with yesterday’s inflation assumptions. That’s why I believe we need to recalibrate our financial strategies to reflect a more honest picture of economic reality—one that aligns with what people are actually experiencing.
