As a core reference indicator for investment decisions and monetary policy, the Consumer Price Index (CPI) has long been regarded as a benchmark for measuring inflation. However, Vasilii Sapozhnikov, an economist at the Mises Institute, argues that this indicator is flawed in its design, with outdated and misleading data, and that the ratio of the Dow Jones Industrial Average to the price of gold is a reliable alternative measure.

The CPI has inherent flaws, and its benchmark is not objective.

In a recent analysis, Vasily Sapozhnikov wrote that the U.S. Bureau of Labor Statistics released data on August 12 showing that the Consumer Price Index (CPI) rose 0.1% month-over-month and 3.4% year-over-year in July, a slight decrease of 0.1 percentage points from June. The market generally interpreted this data as proof that inflation indicators were functioning normally. He believes that this statistical system inherently presupposes a constant dollar benchmark, recording only changes in commodity prices and ignoring fluctuations in the value of the currency itself . Sapozhnikov stated that the CPI uses currency as a fixed reference point, attributing all changes to commodities . This premise is not merely a technical detail, but the core logic of the entire indicator. If the dollar is used as the benchmark, this system naturally cannot detect whether the benchmark itself has shrunk. Furthermore, the weighting and calculation methods of CPI statistics are continuously adjusted. He cited examples: In January 1983, the U.S. Bureau of Labor Statistics stopped directly tracking owner-occupied home sales prices and instead used equivalent rent to estimate the implied rent for owner-occupied homes; in 1996, the Boskin Committee determined that the CPI overestimated inflation by about 1.1 percentage points annually, and since then, statistical agencies have introduced the geometric mean algorithm, continuously expanding the scope of quality adjustments, with product upgrades directly deducting price increases. He emphasized that he was not accusing the data of fabrication, but rather observing a pattern: every major revision over the past forty years has suppressed the calculated inflation figure, and Social Security, tax brackets, and indexed debt are all adjusted based on this inflation data. In the July data, housing contributed two-thirds of the monthly inflation increase, and the largest component of the housing sector was not actual rental transactions, but rather the implied estimated rent for owner-occupied homes.

The Dow Jones Industrial Average (DJIA) is more equitable and is not subject to artificial adjustments or intervention.

Sapozhnikov stated that gold is not subject to such artificial adjustments. No special committee has modified the statistical methods, and there is no need for seasonal adjustments, annual weight updates, or data retrospective revisions. While the intrinsic value of gold is not constant, there is no institutionally defined pricing rule for it; an ounce of gold in 1932 has the same properties as an ounce of gold today. To verify the true purchasing power of a currency, a reference point beyond the control of the currency issuer is needed. Pricing the Dow Jones Industrial Average in ounces of gold ensures that the data will not be modified or adjusted by any institution, and no entity has the incentive to tamper with the data. On August 17th, the Dow Jones Industrial Average closed at 53,459.78 points, near its historical high. At the same time, the price of gold was approximately $4,400 per ounce, meaning the Dow Jones was equivalent to about 12 ounces of gold. In early 2024, the Dow Jones will be worth approximately 19 ounces of gold. He pointed out that while US stocks have continuously reached new nominal highs in dollar terms, if converted to gold prices, the actual market capitalization of US stocks has shrunk by about one-third in two and a half years. Both statements are true, only using different units of measurement. The key information in monetary economics lies in the difference between the two sets of data. Historically, extreme values in the Dow Jones Industrial Average (DJIA) ratio often correspond to major market turning points. In September 1929, the DJIA was equivalent to approximately 18 ounces of gold; by July 1932, it had fallen to only 2 ounces. In February 1966, the DJIA corresponded to approximately 28 ounces of gold; by 1980, it had dropped to 1 ounce. In August 1999, the ratio surpassed 40 ounces, reaching a historical peak, before falling back to 6 ounces in 2011. Between 2011 and 2024, the ratio maintained a long-term upward trend, an unprecedented period, until February 2024, when this trend was broken, with the ratio declining from 19 to its current level of 12.

Credit drives up asset prices first; CPI can only capture the final signals.

Sapozhnikov explained that new credit does not simultaneously and proportionally push up all prices. Funds first flow into long-cycle assets, with stocks, real estate, and long-term bonds rising first. The CPI only shows changes when the impact reaches everyday consumer goods. In other words, the CPI can only capture the final signal of monetary expansion and is not a suitable tool for monitoring monetary easing. Gold is not a liability of any institution. It performs modestly during boom cycles but undergoes repricing during bubble bursts. The Dow Jones-Gold ratio can simultaneously reflect the credit cycle and the trend of capital flight to safe havens. He also gave a verifiable prediction: historical cycle lows roughly follow a linear pattern, around 2 ounces in 1932, around 1 ounce in 1980, with the lows halving approximately every half-century. Extrapolating from this, the current cycle is expected to bottom out around 2030, and the Dow Jones-Gold ratio may fall to 0.5 ounces. Sapozhnikov stated that if the ratio rebounds from 12 and breaks through the historical high of 40 ounces in 1999 before falling to single digits, then this theory will completely fail.

Conclusion

In conclusion, official CPI data can only provide results within a given statistical framework and is unlikely to reflect the true changes in the purchasing power of the US dollar. To understand the value shifts of a monetary benchmark itself, it is necessary to use a reference point that is not subject to artificial revisions. The Dow Jones Industrial Average and the gold price ratio offer a completely new perspective for observing monetary cycles and real inflation.