You're absolutely right, which is why that's exactly how poverty is measured. :) The World Bank actually uses a PPP measure of $1.25 per day in 2005 dollars for "extreme poverty". Let's break that down:

First, as I said, the World Bank uses a PPP measure of $1.25 per day. PPP stands for Purchasing Power Parity, which means that this is measure doesn't mean "has US $1.25 of local currency at current exchange rates", but instead means "has enough local currency to buy a basket of goods and services which could be purchased for $1.25 in the US". Or in more concrete terms, the World Bank is defining it as "can buy as much rice or flour as would cost $1.25 in the US", not "can buy $1.25 of rice or flour at local prices".

Second, the measure is in constant 2005 dollars, which means that it is indeed indexed for inflation.

And now you know. :) (Other poverty measures do focus directly on calories or food, but food isn't the only good or service the very poor need to purchase. That's why the World Bank uses a basket containing a mix of goods and services. Nothing's perfect, but the Bank's measure is pretty good at accurately tracking the condition of the poor both over time and between countries.)

Thank you for explaining it in detail. Now it all makes sense.

Edit - Without the internet, the forums and the good people, i would have remained as ignorant as I was before.

Those aren't currency exchange rate dollars, they are "purchasing power parity" dollar equivalents, which take into account everything you've mentioned.

It isn't true. The calculations are done for some "average" group. And the group is selected based on the research goals, can have nothing in common with say your family.