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MY INFLATION RATE IS UP
I'm having real problems with the concept that we are not undergoing an inflationary period. I know what the government says the CPI is, but I've been tracking my family expenses to the penny for two full years as of August 31 — our last significant change of life. In the last two years we have had no significant changes in our purchasing habits, but the cost of food, housing, medical care, transportation and utilities have increased 35.4 percent over that period. That's pretty much everything but entertainment and clothing, both of which we've had to cut back on drastically, and does include a shift from fresh produce to frozen. And it isn't just gasoline either — every single category I mentioned is up at least 20 percent. I've talked to other people like me and they all say the same thing — the cost of living is going up double digit. Yet the CPI says there's no inflation. Where's the disconnect?
          William D., Reno, Nevada

Wow -- talk about having your spending under control! Congratulations on a job well done. (Um, could you help me balance my checkbook?)

Our best guess is that the disconnect is between the average behavior and spending patterns of all American (which is what government statistics like the Consumer Price Index represent) and the experiences of real people like you and me.

Most household budgets include the categories you describe: We all need to put food on the table, a roof over our heads, clothes for ourselves and families, and maybe a trip to the doctor or a night at the movies. But it’s highly unlikely that your budget mirrors the average in each of the many categories the government uses to track the spending used to calculate the widely-cited CPI inflation index.

Transportation, for example, makes up nearly 20 percent of the “average” U.S.  household budget in the broadest measure used by the Bureau of Labor Statistics, the keeper of the CPI. So if you drive 30 miles to work in a pickup that gets 12 miles to the gallon, your “transportation inflation index” is going to go up a lost faster than, say, a city dweller who takes the bus to work and doesn’t bear the expense of owning and operating a car.

According to the currently-used breakdown, the “average” American spends 40 percent of their budget on housing, 17 percent on food, roughly 5 percent each on medical, recreation and education expenses. In my case, with tuition bills for two kids, I’m spending way more than 5 percent of my disposable income on education. So my “education inflation index” is rising much faster than the retired couple whose kids have graduated. And if those retirees are covered by Medicare, their out-of-pocket medical expenses may be lower than yours and mine as well. Since the inflation rate for higher education – like medical care – is rising much more quickly than the overall “average” inflation rate, my household inflation rate will be higher than someone who doesn’t have tuition bills to pay or has better medical insurance.

The folks at the BLS get pretty specific: it turns out, for example, that of the 1.124 percent of all household spending went to pay for fruits and vegetables, .098 percent went to pay for apples and .086 percent was spent on for bananas. Coffee makes up .101 percent of the “average” household budget. And .270 percent was spent on bedroom furniture.

So while you may prefer bananas on your cereal and an extra cup of coffee with breakfast in your new bed, if I grab a cup of tea and eat an apple on the way to work, our personal inflation rates will be different.

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