How to figure out your personal inflation rate
In June 2022, inflation reached a 40-year high of 9.1%. According to the Bureau of Labor Statistics’ Consumer Price Index, consumers face rising prices on utilities, groceries, gas and everything in between.
What exactly does that mean for you? It means everyday essentials today cost markedly more than they did a year ago. The reasons for this are numerous and the solutions will take time to implement. But in the meantime, the best way we can fight inflation is by figuring out exactly how it’s affecting us individually — and to do that, we need to figure out our own personal inflation rate.
What is inflation?
Inflation refers to an increase in the price of goods and services and an overall decrease in purchasing power. According to the Federal Reserve, average inflation is 2% or lower. With that number currently sitting at more than 9%, economists and consumers are right to be concerned.
Everything from groceries to gas and utilities are up significantly from last year. Why? We can thank — at least in part — factors like the ongoing Covid-19 pandemic, the global supply chain shortage, rising consumer demand, and the unintended consequences of the stimulus checks issued during the pandemic. High inflation essentially means everything costs more and your money is less valuable. It’s not likely to change any time soon, which is why savvy consumers need to take steps now to protect their bottom line.
What is a personal inflation rate?
Our personal inflation is the rate at which our individual spending has increased in key categories over the last year. It determines how much more we spend on the essential goods and services we buy regularly.
Since most of us are not getting an 8% raise to deal with these rising prices, being able to calculate our personal inflation rate is crucial. Doing so helps you figure out where you’re seeing the most significant spending increase and where you can save money as prices skyrocket. Determining your individual inflation rate can also help you make budget adjustments to bring your spending closer to previous years.
How to calculate your personal inflation rate (step-by-step)
To calculate your personal inflation rate, you’ll need to get a hold of your credit card and bank statements from the last year or as far back as you want to go. Then compare your current spending against previous years. Specifically, you should focus on the following spending categories:
Dining
Entertainment
Groceries
Gas and transportation
Housing
Medical expenses
Retail
Telecommunication (phone, internet, streaming)
Transportation
Utilities
Gathering all the transaction information might be challenging if you use multiple credit or debit cards. That’s where a spending tracker — we prefer Mint — can simplify things. You can link all of your credit and debit card accounts, then filter your transactions by date and category.
Once you’ve added your accounts to Mint, follow these steps to break down your spending:
1. Go to the “Transactions” tab
2. Select the “Category” dropdown
3. Select the date range you want to tally up spending for (i.e., June 2021 vs. June 2022)
4. Repeat for each category
Once you have the total spending for each category, follow this formula:
June 2022 - June 2021 = A
A / June 2021 = B x 100 = C%
So if you spent $300 on gas in June 2021 and $500 in June 2022, your personal inflation rate is 67%. That means you’re spending 67% more on gas this year than last year.
$500 - $300 = $200
200/300 = 0.67 x 100 = 67%
From here, you can take steps to lower your gas expenses. If you have a long commute, you can ask for more remote days at work. If you’re a commuting student and have the option to take online courses, you might want to consider that next semester.
Since the start of the pandemic, more companies and schools have embraced remote work/attendance. So this is definitely a viable option for reducing commuting hours and gas expenses.
If you can’t cut back on driving, you might want to take advantage of apps like Upside, which offer discounts at gas stations. Combining these savings at the pump with credit cards that offer up to 5% cash back at gas stations can really add up.
Regardless of where most of your personal inflation rate falls, you can create a strategy to combat inflation by knowing exactly where it’s affecting you the most.
Bottom line
While the Federal Reserve has raised interest rates and is likely to do so again, we won’t notice any change overnight. So for the foreseeable future, most Americans will have to consider eliminating unnecessary expenses and spending as little on necessary ones. Many are already doing just that — buying cheaper cuts of meat, switching to generic products and cutting back on non-essential purchases.
But if you want to know exactly where your spending has increased the most, learning your personal inflation rate is a smart step in cutting expenses and keeping your budget under control.
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