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How to calculate your personal inflation rate

Inflation is the sustained increase in the price of goods over time. So if you are paying more for eggs or a gallon of gas than you were this time last year, you are experiencing inflation. The Federal Reserve aims to keep inflation at around 2%. The economy can keep up with this inflation rate, and wages tend to naturally increase year over year so spending power remains the same. To combat high inflation, the Federal Reserve increases interest rates to make it less desirable to borrow money. Many experts think that this period of high inflation will be short lived, so there isn’t much reason to panic.

While the Federal Reserve refinances loans to help control the economy, you can refinance a personal loan to save money. One way to do this is to calculate your personal inflation rate. First, find out the current inflation rate using the consumer price index. Then, look at your budget and calculate how much more you are spending on essentials like food and housing compared to last year. This increase is your personal inflation rate. You can use this information to negotiate a lower interest rate on your loan. By refraining from refinance personal loan, you can end up saving money in the long run.

Let’s take a more detailed look at how inflation impacts you.

 How to see how inflation impacts you

  1. Look at your credit card bills and bank statements. See how much you spent on housing, food, gas, clothing, and entertainment in June 2022 and June 2021.
  2. Do the math. Take all of your expenses from June 2021 and subtract them from June 2022. Then, divide by your monthly expenses for June 2021.

This number is your personal inflation rate.

For example, let’s say you spent $3000 on expenses in June 2021. In June 2022, you spent $3400 on the same expenses. To calculate your personal inflation rate, you would take $3400 – $3000 to get $400. Then, divide $400 by $3000 to get your rate of: 0.133 or 13.3%.

This would mean that your personal inflation rate is even higher than the 9.1% national average. Depending on your salary, this might not be that huge of a change, or it could be the difference between paying bills on time or defaulting on loans. Your lifestyle greatly impacts your inflation rate. For example, meat increased at a much higher rate than fruits and vegetables over the past year. If you work remotely, you spend less on gas than those who commute. All of these factors will determine just how impacted your household is by inflation.

Bottom line

Your personal inflation rate all depends on your consumption habits. If you are a low-spender, then you will not be affected by inflation quite as much as those who spend a lot each month. Individuals will be less impacted by inflation than families. Similarly, when thinking about retirement, you will want to account for inflation. The spending power of $1000 today might be much less than the spending power of $1000 in 20 years, so you will want to invest in a way that combats inflation.