CPI is an Exchange Rate

Contrary to popular perception, it has long been a policy for the Internal Revenue Service to allow income, expenses and gain, to be adjusted for inflation. To understand this little known fact we have to look at the dynamics of exchange rates.

In the textbook, Financial Management Theory and Practice the author explains, "In fact, a foreign currency will, on average over the long run, depreciate against the dollar at a percentage rate approximately equal to the amount by which that country's inflation exceeds our own."

If we set the foreign country's inflation rate to zero, then the foreign currency will depreciate against the dollar at the same rate as our inflation rate.

In this context, we can see that the CPI is nothing more than an exchange rate, however since US citizens are barred from using this exchange rate to accomplish inflation adjustments they maintain ownership of US assets off-shore to get the same effect.

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See Financial Management Theory and Practice, Fourth Edition, Eugene F. Brigham, (CBS College Publishing 1985, 1982), p. 1040