After almost a decade in hibernation, gold bugs are roaming the earth again. A fast drop in the dollar’s real yield and the uptick of a favored gauge of inflation expectations have sent the metal on a wild ride.

Skeptics might say there isn’t enough evidence of rising prices to warrant a neck-breaking run in gold, traditionally seen as a hedge against inflation. (Maybe all that lockdown isolation had bond traders imagining things.) In July, U.S. consumer prices rose 1% from a year earlier, well below the Federal Reserve’s 2% target. Meanwhile, at 2.7%, the headline figure in China remained in check, even as pork and fresh vegetable prices soared.

But here’s a thought: What if our governments aren't measuring consumer prices correctly? Is it possible that inflation is actually lot higher?

Covid-19 has overhauled our spending patterns entirely, not least because of social distancing rules. We’re laying out less on transportation, restaurants and hotels, and splurging on food, because — like it or not — we’re all home chefs now. This sudden change can introduce significant biases in the consumer price index, according to a new study from Harvard Business School.

Statistics bureaus in most countries update their CPI expenditure baskets only once a year, often using lagged data. The U.S. Bureau of Labor Statistics, for instance, revised its weightings last December using information collected a year earlier. As a result, the indexes don't reflect Covid-19.

In the official gauge, for instance, groceries receive a weight of less than 8%, whereas transportation gets about 15%. But recent data collected from consumers’ credit and debit card transactions show that a more appropriate weighting would be around 11% and 6%, the study’s author, Alberto Cavallo, found.

As gnarled distribution makes food more expensive, and groceries take up a bigger share of our daily budgets, the inflation we’re feeling is quite a bit higher than the numbers suggest. Meanwhile, cheaper transportation hardly matters, because we’re all staying home.

The bias in China is harder to measure because the CPI weighting is a state secret. What we do know is that the National Bureau of Statistics tweaks it every year. Bloomberg Intelligence gives us their best estimates: Food may be getting a 20% weight, while transportation and communication has about 14.5%.

Nonetheless, China's downward bias is likely even more pronounced. Say food returns to its 30% weight from five years ago, a back-of-the-envelope calculation shows that consumer inflation would have hit 4% in July, well above the central bank’s 3% comfort zone. Food prices jumped by 13.2% last month, versus a 4.6% rise in the U.S., because a severe flood disrupted the supply chain.

This perhaps explains why, even though the dollar has become a less attractive investment vehicle thanks to the U.S. government’s chaotic virus-containment policies, investors aren’t crowding into high-yield emerging-market currencies but opting for gold instead. Nominal rates are falling everywhere, while inflation is ticking up, and who knows what the real interest rates in various nations are. Gold, as I’ve argued, serves as a useful hedge in these extraordinary times.

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