Micro level inflation

At a time when inflation rates are making daily headlines and the central bank appears powerless to combat it due to the major credit market issues it is important to remember that it does not affect everybody equally. While macro level inflation can be useful as a general indicator it is unlikely that you are seeing the same level of inflation in your personal (micro level) finances.

Using an online tool such as http://news.bbc.co.uk/1/hi/business/7610430.stm can allow you to determine micro level inflation with some accuracy. As any growth investing should be done with a view to beat inflation after costs and taxes are accounted for, using a tool like that on an annual basis is a good idea and only takes a few minutes. Basically it lets you set the goalposts accurately and also cushions any emotional response from seeing all the depressing headlines in mainstream media.




It's also interesting to tinker with the inputs to see how modifying expenses affects the personal inflation rate. For example dropping a £200 expense of eating out reduces my inflation rate by 0.2% but not paying a mortgage increases it by 2.7%. If my mortgage was twice as large then my personal inflation rate would drop to 2% as more of my outgoings would be towards this static payment. Thankfully the mortgage industry hasn't yet had the idea to force inflation adjustment on mortgage repayments on us.