Blockchain Innovation Seeks to Replace Prevailing CPI

For decades, the Consumer Price Index (CPI) has been used to measure inflation across the prevailing economic landscape. Historically, it has been accomplished by tracking the changes in prices paid by consumers for a basket of goods and services over a certain period.

Ideally, these goods and services are categorized into eight distinct groups: food and beverages, apparel, housing, education, transportation, healthcare, communication, and recreation. In the U.S., the CPI is one of the primary economic indicators used for identifying inflation (as well as disinflation and deflation).

However, economists are increasingly questioning whether the CPI is indeed the most accurate way to characterize inflation, especially as inflation creeps higher and the Federal Reserve admits that isn’t just temporary.

Over the years, several controversies have arisen regarding the index, and whether it is either overstating or understating inflation. Now especially, as an extended period of low interest rates spark high asset inflation, notably in housing, the calls are growing louder for an updated approach.

The CPI has also been questioned over its data privacy problems. Since CPI is tracked by aggregating consumer data across several sources and then stored in centralized servers, it does pose serious privacy risks.

While there are growing calls to reform the CPI measure and restore confidence in inflation tracking to inform monetary policy decisions, blockchain-based technology is already answering the call.

Partisia Blockchain, a Web3 public blockchain built for privacy and interoperability, has partnered with Frax Finance, the first fractional-algorithmic stablecoin protocol, to develop the Frax Price Index (FPI), the blockchain-centric version of the Consumer Price Index (CPI).

Secure, Transparent Inflation Rate Tracking Tool

The FPI will serve as the blockchain-based benchmark that can be used to track the inflation rate in the traditional finance (TradFi) ecosystem.

The Frax Price Index leverages Partisia Blockchain’s privacy-preserving multi-party computation (MPC) technology to ensure end-to-end data privacy for data contributors. Using Partisia’s dedicated oracles, FPI can aggregate data onto the blockchain to provide an efficient and transparent inflation tracking tool, which can also be used by the DeFi ecosystem.

At the same time, Frax Finance’s algorithmic stablecoin, FRAX, is more than an ordinary 1:1 USD-pegged stablecoin like Tether or USDC. Unlike peers, the underlying technology employs a demand-supply curve where users minting and redeeming FRAX ensures that the token’s price stays stabilized. 

Together with Partisia Blockchain’s distributed ledger technology, all available consumer data will be transformed into secure indexes. The output is an FPI metric designed to ensure a fully transparent inflation rate tracking model that disrupts the existing process, all while promoting greater accuracy and data protection.

Disclosure: At the time of publication, Reuben Jackson did not have a position in any of the securities mentioned in this article.