Each month, the Office for National Statistics (ONS) publishes inflation data showing how much costs have changed over the past year. But does your personal inflation rate differ to the national inflation rate – and how can you calculate it?
The Consumer Prices Index (CPI) is the main measure of inflation in the UK. To measure CPI each month, the ONS looks at around 180,000 prices across almost 750 typical goods and services, calculating how much prices have changed.
The shopping basket includes things like eggs, flour, energy costs, petrol prices, education costs, and more. The ONS adds and removes items each year to reflect changing consumer habits.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Despite this, an important question for many households is: does the CPI shopping basket accurately reflect price increases in my own lifestyle? Air fryers and vinyl records were added to the CPI shopping basket earlier this year, for example. But what if you prefer listening to Spotify while eating oven chips?
On a more serious note, the basket also includes things like nursing home fees and air fares – costs that don’t necessarily feature in every person’s day-to-day life. Meanwhile, it doesn’t include things like mortgage repayments.
To cite another recent example, October’s inflation figures were driven up by higher energy costs, but these generally hit retirees harder than young working professionals. This is because retired people tend to spend more time at home and feel the cold, prompting them to reach for the thermostat more often than younger households.
With this in mind, it could be worth calculating your personal inflation rate to get a more accurate picture of how prices are changing for you. We look at how to do this and why it matters.
How do I calculate my personal inflation rate?
You can calculate your personal inflation rate by running through your receipts and bank statements and noting down how much you spent in the last month.
If you compare this to your expenditure in the same month a year before (and your spending habits were roughly the same), the difference between the two figures will give you a rough idea of how much prices have gone up or down.
You will need to be careful to strip out any expensive one-off purchases you made. Likewise, you should account for any month-to-month lifestyle changes too. For example, if you hosted a dinner party one month but mostly cooked for yourself in the equivalent month a year later, it’s likely that this cost will distort your food spending figures and make them less comparable.
If you don’t want to do the calculations yourself, it might be easier to use the personal inflation calculator provided by the Office for National Statistics (ONS). This asks you a series of questions, such as:
- What is your current housing situation (e.g. repaying a mortgage, renting, etc)?
- What is your household income?
- How much does your household spend on food and drink?
- How much do you spend on energy bills?
The tool is interactive so, once you have entered your information, it will automatically calculate your personal inflation rate.
Knowing your own inflation rate isn’t just a matter of idle curiosity. Seeing where your own budget is feeling the biggest increases can help you tailor where you make cutbacks. For example, finding out your food bill has gone up by over £50 a month could be just the incentive you need to switch to a cheaper supermarket.
The CPI shopping basket has twelve divisions. These include:
- Food and non-alcoholic beverages
- Alcohol and tobacco
- Clothing and footwear
- Housing and household services
- Furniture and household goods
- Health
- Transport
- Communication
- Recreation and culture
- Education
- Restaurants and hotels
- Miscellaneous goods and services
There is another measure, CPIH, which also includes council tax and owner occupiers’ housing costs. These are the costs associated with owning, maintaining and living in your home.
Before CPI became the official measure of inflation, the Retail Prices Index (RPI) was used. We compare the two indices in: “CPI vs RPI inflation: what is the difference between ONS measures?”
Inflation forecast: where are prices heading next?
Inflation rose to 2.3% in October, up from 1.7% in September. This was broadly expected after household energy prices surged 10% at the start of the month.
Despite this, the UK economy has made decent progress with disinflation, particularly when you consider prices were rising at a rate of more than 11% two years ago. This doesn’t mean prices are now falling – at least not across the board. In most categories, they are just rising at a slower rate than they once were.
The fiscal watchdog published updated inflation forecasts last month alongside the Autumn Budget. The report said inflation is expected to average 2.5% this year and 2.6% in 2025. It should then fall to 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2% in 2029. The Office for Budget Responsibility added that policies announced in the Budget could keep inflation slightly higher for longer.
'North Sea oil is ripe for a rebound'
'I have been freelance for almost a decade. Here are my 6 tips for pension saving'
