What’s Your Rate of Inflation?

Inflation is at the highest level in four years. But how much do you enjoy and how much you eat depending on how much you eat and how much you travel and your other spending habits. Answer seven questions to estimate your personal inflation rate.

The numbers above are derived from the Consumer Price Index, the best-known measure of inflation. The CPI is based on a “basket of goods”: the prices of a variety of purchased goods and services, from cookies to cars to college tuition, to blended together, and to the proportion of each product counted to its overall cost.

Clothing, for example, accounts for about 2.5 percent of the average American’s monthly spending, so make up the cost of clothes. But if you spend more than 2.5 percent of your budget on clothes, your personal rate of inflation will be different.

Prices are rising pretty much across the board now, but the ones that increase are some of the fastest growing categories, like meat, cars and travel. People who spend a lot on those categories are experiencing much faster inflation as a result.

The calculator above adjusts your rate of inflation based on how much or less you spend on different products than the average American. It doesn’t account for other factors, like whether you live in a more expensive part of the country or more likely to shop around for bargains. Even so, it reveals a wide range of different benefits: depending on how you answer the questions, you may have a “personal inflation rate” of as low as 5 percent or as high as 15 percent.

Even a 5 percent inflation rate is the highest in recent history – before the pandemic, prices in the United States were rising by about 2 percent a year. But when it comes to inflation, small differences have a big impact. At 5 percent, prices double in about 15 years. At 7 percent, prices double in just over 10 years. And at 15 percent, prices double in only five years.

Oil price boom

Perhaps the clearest case study of how people experience inflation is differently gasoline.

Gas prices have shot up in recent months, partly because of Russia’s invasion of Ukraine’s roiled global energy markets. Prices were up 48 percent in March from a year earlier, accounting for a fifth of the increase in the overall Consumer Price Index.

Gas prices are a major factor driving inflation

Change in the Consumer Price Index Since February 2020, with and without gas

Source: Bureau of Labor Statistics

But if you don’t own a car, or drive infrequently, then gas prices may not matter much to you, at least not directly. (You may not be able to afford indirect effects, such as higher commodity costs due to increased transportation costs). distances, gas may eat up a big chunk of your monthly budget.

Another energy-related example: heating oil gets hardly any weight in the overall index because most Americans don’t heat their homes with oil. But if you’re among the roughly 6 percent of families that do, then heating oil is a major expense for you – and with heating oil costs up to 70 percent over the past year, your rate of inflation is almost certainly higher average.

The curious case of cars

New and used cars account for about 4 percent of Americans’ total spending in a typical year – and prices for both have skyrocketed recently due to supply chain disruptions and other issues. New car prices are up 12.5 percent over the past year, and used cars are up by an even crazier 35 percent.

If you weren’t in the market for a car in the past year, then soaring vehicle prices didn’t matter – and their own personal “basket of goods” was zero. And if you did buy a car lately, chances are it made up a lot more than 4 percent of your spending. In the above calculations, we assume that if you buy a car, it will account for a large part of your annual budget.

If you buy a new car (and didn’t even buy a used one), your rate of inflation went up down. That’s why dropping used cars from your personal basket – and used car prices – is a major factor in inflation overall.

What the CPI and similar inflation indexes measure is how much more it costs to buy a set of goods and services today than the same set of goods and services a year ago. For many products, that makes sense. You probably eat roughly the same amount of food and wear through roughly the same number of socks one year to the next.

Most families do not buy a car every year, though, which means that this kind of year-to-year comparison does not quite make sense at the individual level. The same is true for washing machines, refrigerators or other big-ticket items.

For these products, it arguably makes more sense to think about inflation in a longer time: New car prices have risen by about 13 percent over the past five years, for example, at an average annual inflation rate of about 2.5 percent.

What about housing?

From the calculator above: housing.

For most of us, the cost of housing – whether it’s a rent check or a mortgage payment – is our biggest expense every month. And that’s the biggest component of CPI as well, accounting for roughly a third of the total index.

But calculating housing inflation is complicated, especially for homeowners. That is why, for most people, a home serves two purposes: it is a source of shelter and an investment. Investments are included in measures of consumer prices, however, because they are more consumer spending. (When you put cash in your retirement account, you’re probably spending “money; you’re saving it for the future.”

When determining inflation, economists care about the shelter aspect of homeownership: the “service” of a place to live. They can’t measure that directly – when you’re making your mortgage payments, you don’t distinguish between the “investment” part and the “shelter” part – so they measure it indirectly A similar home, a concept known as “owners’ equivalent rent.”

“Owners’ equivalent rent” is a theoretical concept, though. If we are trying to understand a family’s real-world cost of living, it makes more sense to look at its actual monthly costs. If you have a fixed-rate mortgage, your monthly mortgage payment does not go up when home prices rise.

In fact, if you have refinanced your past two years, as many people have done, then your monthly expenses may be gone down – Even when factoring in higher taxes or maintenance costs.

For renters, the situation is a bit more straightforward. The rental component of CPI is based on how many rents have gone up or down across the country. But rent is such a big chunk of most people’s budgets, and it is so much more than a city and even a building to build, that does a nationwide average. Someone in a rent-controlled apartment in New York City may have experienced only one modest rent increase this year, while someone is signing a new lease in a market-rate apartment next door.

The chart below shows how much a household’s overall rate of inflation may look different based on that just on its housing situation. For homeowners, we’re assuming their monthly costs didn’t change at all. For renters, it makes a huge difference whether they have a new lease in the past year, and whether they live in New York, Las Vegas or another city where rents are rising – by 25 percent or more for new listings – or one where rent growth has been more modest, like Dallas or (perhaps surprisingly) San Francisco.






6%

higher

prices

than a

year ago

Estimated inflation

with people for rates

different housing

situations, assuming

their spending is

otherwise average.

With Renters

a new lease in a

city ​​where rents

they are rising

Homeowners

with a fixed-rate

mortgage

A new one with renters

where a city in lease

rents are growing

modestly

With Renters

a modest

rent increase

6% higher

prices than a

year ago

People with Estimated Inflation Rates

Different housing situations, assuming

Their spending is otherwise average.

Homeowners

with a fixed-rate

mortgage

Renters with a

modest rent

increase

A new lease with renters

in a city where rents are

growing modestly

A new one with renters

where a city in lease

rents are rising

6%

higher

prices

than a

year ago

Estimated inflation

with people for rates

different housing

situations, assuming

their spending is

otherwise average.

With Renters

a new lease in a

city ​​where rents

they are rising

Homeowners

with a fixed-rate

A new one with renters

where a city in lease

rents are growing

modestly

With Renters

a modest

rent increase

6% higher prices

than a year ago

People with Estimated Inflation Rates

Different housing situations, assuming

Their spending is otherwise average.

Homeowners

with a fixed-rate

mortgage

Renters with a

modest rent increase

A new lease with renters

in a city where rents are

growing modestly

A new one with renters

where a city in lease

rents are rising


Who’s experiencing the worst inflation?

There’s a lot of our calculators not take into account. We’re assuming that prices and food and clothes and cars are rising at the same rate for everyone, for example. But prices can vary based on a lot of what exactly product you buy and where you buy it. The Labor Department collects data on the price of steak, but it does not distinguish between organic, grass-fed prime rib and skirt steak.

If you have children in day care or preschool, you may be able to find your rate of inflation going down in the calculator. Child care prices are up 3.6 percent on average over the past year, according to the Department of Labor. That’s a major hardship for many families, given the already high cost of child care, but it’s also lower than the overall cost.

But depending on where you live, and whether or not you qualify for government-subsidized programs like Head Start or other factors, your child care costs may have gone up more than 3.6 percent over the past year. That won’t be caught in the calculator. Recent research has found that product changes within the category of differentiation – across different categories of steak or brands – may be related to child care – and even more so in inflation.

Within the broad data from the Department of Labor, there is evidence that poorer households are experiencing faster inflation than wealthy households have been leading up to the pandemic. And the Federal Reserve Bank of San Francisco has found that inflation inequality – the gap between the most inflationary and those experiencing the least – tends to rise when prices rise. Inflation also tends to be higher on poorer households because they have less flexibility in their budgets, giving them less room to cut back when spending on discretionary spending.

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