Your Personal Inflation Rate May Vary

Inflation? The official figures have total CPI for September (measured year over year) as 2.1%, roughly at the Fed’s preferred target. However, for individuals, each household’s perception of true inflation is different, thanks to a different mix of goods and services consumed. As Morningstar wrote: “If consumers rent, use a lot of medical care, and use a lot of energy, inflation could look pretty nasty, as much as 4% or 5%. If someone uses a lot of food, buys a lot of apparel, uses a lot of imported goods, and owns their own home, their inflation rate could be closer to 1%. So one-size inflation rates aren’t always very helpful or descriptive on an individual level.”

Here’s the accompanying graph:

As you can see, inflation rates on goods are generally low. To avoid being hit by high inflation, we should seek to limit our spending in the categories of energy, housing, medical care, and transportation (closely linked to energy).

My book on wealth has many tips on how to save in each of these areas. Some highlights include:

  • Live close to where you work to minimize the commute
  • Consider biking or walking to work
  • Stick to being a one car household, with that one car being a cheap used one
  • Bundle up with more layers instead of turning up the heat
  • Buy a house you can afford, move, or shack up with roommates
  • Stay healthy and practice good habits to minimize sudden unexpected medical bills

The last one can be hard to do, which is why I’m working on a book on health as a follow-up to my Evidence Based Approach to Wealth. Stay tuned.

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