The investment world is full of assumptions, clichés, false narratives, and a striking lack of understanding about what truly drives returns and value. Inflation, despite constantly being discussed in financial media, is perhaps one of the least understood forces determining your long-term wealth. Take the way inflation is presented. We are told it is captured by some arbitrary index that supposedly reflects the average basket of goods and services consumers buy. But there is no such universal basket. Your inflation is different from that of your neighbor. More importantly, while high inflation is constantly framed as “bad,” there is rarely a direct translation to what inflation actually does to your savings and wealth. Not a single bank, asset manager, or financial institution shows you the value of your savings or investments in real terms. When you compare savings rates online, all numbers are nominal. When you open your banking app, all numbers are nominal. Even pensions show you nominal future income. Nobody shows you the estimated real return after inflation, even though the real value of your wealth is the only thing that actually determines your purchasing power. That alone is remarkable. In addition, the modern definition of inflation has become incredibly narrow. Almost nobody asks what inflation originally meant, or whether other forms of inflation matter far more than short-term changes in consumer prices. Historically, inflation referred to the expansion of the money supply. The word comes from the Latin “inflatio,” meaning swelling or blowing up. For a long time, inflation literally meant the pace of money growth in the system. Very few investors, let alone ordinary people, have any feel for this measure. And even fewer understand that, in a fiat monetary system, money with no intrinsic value and largely consisting of digital entries on a screen, money supply growth may be a far better measure of inflation for the future value of your savings and wealth. Global money supply is currently growing at an annualized pace of roughly 11%. Since COVID, global money supply has risen by approximately 53%, equal to about 7% annual growth. Since the Great Financial Crisis in 2008, the global money supply has nearly tripled, also compounding at an average annual rate of 7%. Yet because central banks remain narrowly focused on consumer price indices, and because there is so little understanding of the historical meaning of inflation and its direct relationship with money creation, very few people truly grasp how enormous inflation actually is.

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