Hedgeye: The Dollar Has Lost 30% of Its Purchasing Power Over the Past Six Years
Renowned macro research institution Hedgeye stated on social platform X that the dollar has lost 30% of its purchasing power over the past six years. This data has been widely cited and discussed in various media outlets and financial bloggers, including The New York Times.
According to the Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistics (BLS), the cumulative increase in U.S. consumer prices from 2020 to the present is approximately 29% to 30%. This means that $100 worth of goods in early 2020 now requires about $129 to $130 to purchase the same quantity. If measured by the "Dollar Purchasing Power Index" compiled by the Federal Reserve Bank of St. Louis (FRED), this index has dropped from 39.7 points in 2019 to 30.8 points in September 2025, a decline of about 22%. The expressions "prices have risen by 30%" and "purchasing power has decreased by about 23%" are mathematically mirror images of each other—media often simplify both to the same "30%" for reporting, while there is actually a difference of about 7 to 8 percentage points between the two measures.
Looking at annual data, the year-on-year increase in the U.S. CPI was about 4.7% in 2021, exceeded 8% in 2022, and remained above the Federal Reserve's long-term inflation target of 2% from 2023 to 2025. As of the latest data in May 2026, the year-on-year increase is about 4.2%, with inflationary pressures not fully retreating to policy target levels since the outbreak of the COVID-19 pandemic.
Analysts generally attribute this significant erosion of purchasing power to large-scale fiscal stimulus and monetary easing policies during the pandemic—broad money supply M2 saw significant expansion during the pandemic response, combined with supply chain disruptions that drove up prices of goods and services, forming the main driving factors of this round of inflationary pressure. Additionally, data previously disclosed by research institution Creative Planning shows that since January 2021, the nominal average hourly wage in the U.S. has increased by about $5.30, but after adjusting for inflation, the actual purchasing power has decreased by about $0.49. This gap between nominal and real wages has been referred to by some economists as a "hidden inflation tax."
If the observation period is extended to 30 years, the erosion of the dollar's purchasing power is even more significant—according to relevant statistics, the dollar's consumer purchasing power has cumulatively declined by about 50% to 53% over the past 30 years. In contrast, the cumulative inflation-adjusted increase of the S&P 500 index during the same period is about 972%, with an annualized return of about 8%, which is also an important data support for some investors viewing equity assets as a hedge against long-term inflation.
From the market transmission mechanism perspective, the core reason for the continuous erosion of purchasing power is the long-term imbalance between the expansion of money supply and the growth rate of real goods and services output. Excess liquidity ultimately transmits and releases in the economic system through rising prices of consumer goods, energy, and assets; ordinary savers holding cash and fixed-income assets are the direct parties under pressure from the erosion of purchasing power, while investors holding inflation-resistant assets such as stocks, real estate, commodities, and Bitcoin benefit relatively from nominal asset prices rising in tandem with inflation. This is also an important background for the continuous flow of institutional and retail funds from traditional savings accounts to equity assets and alternative asset allocations in recent years, attempting to hedge against long-term purchasing power risks.
Source: Public Information
ABAB AI Insight
The historical starting point for this round of significant erosion of the dollar's purchasing power is generally traced back to the Federal Reserve's rapid reduction of the federal funds rate to near zero and the initiation of unlimited quantitative easing policies in response to the outbreak of the COVID-19 pandemic in 2020. This is highly similar to the first round of large-scale quantitative easing (QE1 to QE3) by the Federal Reserve after the 2008 financial crisis, but the fiscal stimulus during the 2020 pandemic included direct cash subsidies to residents, a "helicopter money" style of fiscal stimulus, which led to a much faster expansion of broad money supply than the rounds of QE after 2008. This is a key historical difference that has caused the current inflationary pressure to transmit to consumer prices more quickly and violently than after 2008.
From the perspective of the flow of funds, the massive liquidity released during the pandemic initially settled in residents' savings accounts and capital markets. As the economy reopened and consumer demand was concentratedly released, combined with global supply chain disruptions leading to shortages of goods, funds gradually transmitted from rising financial asset prices to rising prices of real consumer goods and services, ultimately forming a persistent inflation above policy targets for over four years. Meanwhile, in response to inflation, the Federal Reserve initiated the fastest rate hike cycle in nearly 40 years starting in 2022, attempting to curb overheating on the demand side by tightening financing costs. This "first easing stimulus, then tightening suppression" path of fund mobilization is essentially a product of the monetary authority's repeated weighing between maintaining financial stability and controlling inflation.
The magnitude and pace of this round of erosion of the dollar's purchasing power bear structural similarities to the "Great Inflation" period of the 1970s—at that time, the U.S. also experienced over a decade of high inflation and continuous decline in purchasing power under the combined effects of loose monetary policy and external supply shocks (oil crisis), ultimately tamed by then-Federal Reserve Chairman Paul Volcker through significant interest rate hikes. Currently, the global macroeconomic cycle is in a stage where the normalization of monetary policy in the post-pandemic era has not yet fully materialized, and geopolitical conflicts continue to push up energy and commodity costs, meaning that the pressure of purchasing power erosion has not completely dissipated.
This phenomenon essentially belongs to "pricing power transfer": when the growth rate of money supply long exceeds the growth rate of real economic output, the pricing power of legal tender relative to physical assets and hard currencies will continue to transfer to the latter. This is the underlying logic for why assets such as gold and Bitcoin, which are viewed as "inflation-resistant narratives," have continued to attract increased allocation of funds in recent years. The mechanism occurs because the actual measure of monetary purchasing power ultimately depends on the quantity of real goods and services that a unit of currency can exchange for, rather than its nominal book value; when central banks continuously inject liquidity into the economic system through balance sheet expansion, and real output cannot expand in sync, the excess money supply can ultimately only be cleared through a systematic rise in price levels. This mechanism does not change due to short-term policy adjustments and is also the fundamental reason for the statistical discrepancies in this round of purchasing power erosion, while the substantive conclusions remain highly consistent.
ABAB News · Law of Cognition
The speed of printing money determines the speed of purchasing power loss.
Cash is the most certain depreciating asset.
The moment when money supply outpaces output, inflation has already written its script.