Inflation is highly personal and can vary widely across households with differing consumption behaviours. Whatever headline inflation numbers suggest, you may actually be facing much higher inflation. Not paying heed to personal inflation may give you a false sense of comfort and lead your finances astray.
As overall inflation rate is the weighted average rate of price rise in different items in the consumption basket, one is likely to experience different rates of inflation.
Consumer Price Inflation (CPI) distils wide-ranging inflation rates of multiple items into a single number. This can possibly mask higher or lower inflation in certain items.
Prices are on the boil again
Inflation is now hovering near 7%.
Consumption pattern determines inflation figures of households
Higher rural spend on food and beverages props up its weight in combined CPI when typical urban household spends much lower as % of its total basket. Further, housing accounts for a chunk of urban household’s spends yet gets lower weightage in headline CPI due to its absence in rural basket.
It is pertinent to note that the basket of items and their weighing are based on data of Consumer Expenditure. Survey (CES) of 2011-12. Figures have not been updated since to reflect change in consumption patterns. This may result in vastly underestimated or overestimated inflation.