Magazine article New Zealand Management

Taking Inflation Personally

Magazine article New Zealand Management

Taking Inflation Personally

Article excerpt

Finance columnist Humberto Cruz, writing for Tribune Media Services in the US, is among many commentators raising questions about inflation and how it is measured. Health insurance premiums for himself and his wife increased almost 30 percent last year and this year already had gone up 13 percent. Frequently recurring expenses were rising, too. The monthly cable television bill was costing 13 percent more for the same service; the average grocery bill was four percent higher; travel expenses more than doubled (sure, the couple travelled more, but the cost also went up).

Yet official statistics showed American inflation was on the wane, up only about two percent according to changes in the consumer price index for all urban consumers.

In short, the CPI could help social security beneficiaries anticipate annual cost-of-living adjustments but could not help well-heeled people like him plan their finances. "For an accurate picture, you need to track what I call your 'personal inflation' rate, based on the goods and services you consume," Cruz advised.

This personal inflation rate will depend on a raft of factors, such as whether you have children and how much you spend on your health. People therefore should keep track of all the money they receive and spend and what they spend it on.

In Britain, about the same time, economic writer Chris Gilchrist was asking: just how high is inflation today? The Blair government's preferred measure was the consumer price index, he noted, and CPI inflation year-on-year increased three percent in December. But, the retail prices index (RPI), the previous measure of price inflation used by governments for more than 50 years, showed a gain of 4.4 percent over the same period. Both measures of inflation were rising sharply

More significantly, the Office of National Statistics has introduced a 'calculate-your-own-inflation' tool.

This affirms what Cruz was saying and shows that many people's personal inflation rate--determined by how they spend their money--is higher than the national average. American economist Richard Vedder's own inflation rate for 2006 works out at just under six percent but the cost of living for many pensioners on low incomes last year rose by as much as nine percent.

Now let's pop down to Brazil, where economic professor Antony Mueller was musing not only on how inflation is measured, but on how the consumer price index is used by central bankers. Ben Bernanke had been chairman of the Board of Governors of the US Federal Reserve System since early last year, he noted, and was an adherent of inflation targeting, although the Fed is not explicit about the desired rate of inflation. …

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