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What's Your Personal Inflation Rate Thumbnail

What's Your Personal Inflation Rate

Retirement Funding

Here’s how to calculate the impact that inflation actually has on your budget


While inflation has had a great effect on all of our lives over the past year or so, it doesn’t impact everyone and everything equally. Some prices have increased dramatically, like gasoline rising by 44% from July 2021 to July 2022, while medical care commodities are up by just 3.7% over that same time frame according to the Bureau of Labor and Statistics.

So the amount of inflationary pressure you feel personally depends heavily on how you spend your money. If you commute to a job 45 miles away from home, you’re feeling the pinch; if you’re a retiree whose greatest expense is healthcare, it might not be as bad - although you may have to deal with a 14.5% increase in your Medicare Part B premiums.

It can be helpful in these fluctuating circumstances to figure your own personal inflation rate. Here’s one way to do that:

  • Total up all your spending by category for the most recent month.
  • Go back to your bank and credit card records from one year ago to figure out what your expenses were for each category in that month.
  • Subtract your total 2022 expenses for the month from your total for 2021. Divide the difference by your 2021 total. The result is your personal inflation rate.

So if you spent $8,500 in July 2022 and $7,500 in July of 2021, your personal inflation rate is:

  • ($8,500 – $7,500) ÷ $7,500 = 13.3%

Prices rarely rise in an orderly fashion. In addition to gasoline, some of the categories seeing the biggest price hikes over the 12 months ended in July 2022 include:

  • Fuel oil, up 75.6%
  • Airline fares, up 27.7%
  • Cereals and bakery products, up 15.0%
  • New vehicles, up 10.4%

Meanwhile, other categories have risen by much smaller amounts in that time frame:

  • Physicians’ services, up 0.8%
  • Alcoholic beverages, up 4.2%
  • Medical care services, up 5.1%
  • Apparel, up 5.1%

So it can be helpful, in doing this exercise, to divide your expenses up by category for each month: Put your grocery bill in one bucket, your gas spending in another, your travel and entertainment separately. This can give you an idea of how prices have risen for you as compared to the national averages in each category. And it can give you some insight into any changes you want to make in your monthly budgeting.

Also, keep in mind that the past couple of years have resulted in abnormal spending habits for many people. Maybe you had a major expense last year, such as a home improvement, that won't be repeated. Or maybe you put off your annual European vacation in the time of COVID, but that expense is returning for you this year. If your spending situation is changing, be sure to incorporate that into your personal inflation rate.

With those bits of analysis in hand, you can realistically assess whether you want to make some changes in your budgeting and spending to combat the effects of inflation. Conversely, you might be surprised at how little impact inflation has had on your situation. .

Inflation is always a challenge for both consumers and investors. That’s one reason that the plans created by your Baird Financial Advisor are designed to withstand future changes in the inflation rate, helping you to thrive under any financial circumstances. Your Baird Financial Advisor can show you how your plans are built to weather adverse conditions – and if there are any steps you can take now to protect them further. If you’re concerned about how your personal budget or retirement strategy may be affected by inflation, we encourage you to give them a call.


The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.