What is purchasing power? Why should cryptocurrency investors follow it?

In simple terms: Purchasing power = How much your money can buy.

It may not seem like much, but it concerns your real earnings. For example, if you invest and earn a 5% annual return, but the inflation rate is 6%, then you are actually losing money. This is what is known as purchasing power erosion.

How to Measure?

Using the CPI (Consumer Price Index). If a basket of goods cost 100 yuan last year and 110 yuan this year, it indicates that inflation is at 10%, and your money has depreciated.

Calculation Formula: Purchasing Power = ( Current Price ÷ Base Year Price ) × 100

What Does It Mean for Investors?

• Bonds/Time Deposits Fear Inflation the Most: Fixed income cannot keep up with rising prices, leading to significant losses.
• Stocks are flexible: Companies can raise prices and keep up with inflation.
• Inflation Hedge Assets: Gold, real estate, and TIPS (Treasury Inflation-Protected Securities) can hedge against inflation.

Bottom line: Inflation erodes wealth in an invisible way. Your investment returns must exceed the inflation rate to truly make a profit. Pay attention to CPI data and adjust your asset allocation, as this is the foundation of sound financial management.