 Good day fellow investors! Now I mention inflation quite often because I think it's a game changer in the current financial environment. Higher inflation, higher interest rates, lower asset prices and everything would change. However when we talk about inflation we have to differentiate between the inflation reported from the government which is low and the real inflation which is much much higher. Why the government doesn't want you to know what's the real inflation and wants to show you a lower number? Because A government payments are indexed to inflation. For example pensions, government wages, welfare, if inflation is 2% government payments have to increase 2% per year to give the same amount of money to those who receive those payments. However if inflation is 5% then the government would have to significantly increase those payments and the government doesn't have the money to do that. Secondly if there is higher inflation interest rates would have to be higher. Higher interest rates that would be extremely difficult on the huge debt burdened governments we have in the current environment. So again keep the inflation low as much as you can. In the last 40 years there have been many many adjustments in how the Bureau of Labor and Statistics measures inflation in order to keep it as low as possible for the reasons I have just mentioned. Let me show you some examples of what are the real increases in prices and the reported increases in prices and at the end I'll show you the real inflation what affects your life and therefore you have to plan accordingly. You have to really take into consideration inflation isn't 2% it is a bit higher and therefore adjust your investments your life accordingly. Let's start with some examples. First inflation is very very good across segments. In 2017 energy prices went up 7% rent and what you pay for your home went up 3.2% while wireless services declined 10% in prices. So when you sum everything up you get to an inflation headline of 2.1%. So the first thing is inflation affects you differently depending on what age you are what do you do in life. If you're young and if you're paying rent then that's a huge chunk of your payments and then inflation affects you much differently than if you're retired your main costs are wireless internet to watch YouTube and you have paid off your mortgage. So again very different how inflation affects everybody individually. Another quite interesting example is education. In the last 40 years the cost of education increased 13 times while reported inflation has only increased four times. So if you have been saving the last 20 years for your kids tuition you have been very very negatively surprised by the increases in education tuition. Further if you look at house prices across the states across the world there are great differences between price increases in different cities. Here I have a chart brown New York prices have doubled since 1990 Austin Texas prices have quadrupled and in gray Detroit prices have just doubled. So very big difference in relation to where do you live and where do you plan to live. Now if you are close to retirement what's the most important cost what's the most important thing you worry about is health. So health care costs. So you have been saving for 40 years and then health care costs increase that's something you don't want to see you want to see health care costs increase in line with inflation. Well that's not so. Here are health expenditures per individual in the United States. They have been four thousand dollars in 2000 and in 2014 they have been at seven thousand six hundred. These are the last numbers that Fed has so probably they are now even higher. However if we look at the formally reported health care inflation it increased only 45% in the same period. So how come that life expectancy remained the same in the last 10 15 years. However health care expenditures doubled per individual but the health care price index is just 45% higher because the Bureau of License Pins sorry pardon the Bureau of Labor and Statistics adjusts its price methodology for technological improvements. So if the health care system improves which it has been improving for the past 2000 years then they say okay but this has improved. So let's say the quality improved 10% but the price only 7% so actually prices didn't go up prices went down according to of course the government. So the government always tries to find the methodology to keep inflation low the reported inflation. The main methodology is adjusting the price for improvements in technology. This will best be shown by the hedonic quality adjustment. So for example if the price of a computer is one thousand and next year it is one thousand fifty inflation should be five percent but not according to the government. If you adjust the price for the technological improvements which could come in the form of higher memory a better screen a touchpad whatever that is called hedonic quality adjustments. So prices do go up but those price increases are not reported. What is reported is a lower price because some people at the Bureau of License Pins there I go again. Some people at the Bureau of Labor and Statistics adjust according to what is their perspective on the technological improvements. For example laptops, pens, shorts, footwear whatever and televisions here and of course rent. So if you had a house in the built in the 1950s and now for example you have a conditioning system or something like that then they see it not as a price increase but as a technological as a quality increase and that's adjusted. So house prices are much higher than what they were and what they are included in the inflation measurements. So be very careful about that. Okay so these are a few examples however we can measure inflation from the other way around from the money supply. So much money as much money there as there is now it's clearly seen with the bitcoin and how it increases in price because of the fixed supply so if there is more money inflation should be higher. That inflation doesn't show up everywhere it show ups very very randomly in different places stocks real estate real estate in some places have exploded and that doesn't show up in the headline inflation however that is a huge deal and let's see how the money supply increased but inflation reported inflation didn't. Here is money supply on the left column went from the 1980s till now from two trillions to 14 trillions which means it increased seven times however consumer price index thus inflation went from right column from 90 to 250 thus it increased not even three times so there is seven times more money but inflation is higher just 2.7 times how is that possible well methodology statistical methodology of course if you want something about statistics there is a lie there is a terrible lie and there are statistics so be very very careful when using statistical numbers especially inflation. So if we take this chart from shadow stats we can see that if there wouldn't have been any changes in how inflation is measured since 1980s this would be the reported inflation the blue line on top so 3.5 percentage points higher than what is officially reported imagine what would that do to government payments to the government debt to the government deficit to government interest rates and so on and so on the current environment of lower interest rates would be impossible to maintain and the whole system would crack and that's why the government keeps inflation low. So what to do first you have to see okay real inflation my costs will probably go up five percent a year not two percent as it is reported especially if you're young you're planning on having a family or planning on buying a house you're planning on having good health care in the future and being able to pay that health care so it's something to really include in the financial planning much much higher inflation therefore you have to be also invested and take advantage of what's going on fixed assets land real estate fixed real estate not that can be expanded commodities some hedges like gold companies that can really transfer those price increases that can increase prices higher than actual real inflation in Italy I know everybody's looking at the price of an espresso as the sign of inflation in the past it was one thousand lira that would be around 40 cents now it is one euro or even higher in the Netherlands it is 2.2 2.5 to three euros so prices in the Netherlands are much higher than in Italy but prices in Italy have also increased so whatever the government reports doesn't matter what matters is how much do you have to pay for the same thing doesn't matter if the car improved or not if it has an airbag or not we as people improve every day so we have to expect improved things the government doesn't think because it would destroy many many governments and no politician wants to be the bad guy to tell you oh we are going to report actual inflation we are going to see that we can't pay our debts we can't go more into debt to pay welfare to pay pensions to pay this to pay this because we are over promising in relation to the money we have unfortunately it is like that really take into account what you're doing how you are planning your life according to the real inflation and the reported inflation thank you for watching looking forward to a comment and I'll see you in the next video