I often hear complaints like, “the inflation rate as reported by the U.S. Government drastically understates the increase in my cost of living.” Well, the CPI is a blend of price changes for more than 80,000 items weighted by the actual expenditures of 24,000 families per a periodic survey. Therefore, each of us will experience a different inflation rate depending upon our purchasing habits. To demonstrate the huge variation in inflation across the range of goods and services, the following is a sampling of price changes for the twelve months ending in November 2022 as compared to the overall reported CPI increase of 7.1%:
Airline fares 36.0%
Admission to sporting events -7.2%
Pork and beef -5.1%
Health Insurance 13.5%
Prescription Drugs 2.8%
One important technical note is that the price of smartphones did not actually decline by 23%. However, their quality and capability improved drastically which the Bureau of Labor Statistics (BLS) takes into account through what is known as a “hedonic” adjustment. These adjustments are somewhat controversial with some arguing that they cause reported inflation to be understated. On the other hand, it is not reasonable to compare year-over-year price changes without adjustment on items whose characteristics have changed dramatically. In any case, all of this data is available from the BLS so it is actually possible to calculate your personal inflation rate.