What is your personal inflation rate and how do you calculate it?

UK inflation was 2.3% in the twelve months to April. But are your household costs rising by more or less than the average?

Man pushing shopping cart of groceries up line chart arrow.
(Image credit: Getty Images - Malte Mueller)

Inflation has been slowing from its peak and is now nearing more normal levels. But is the same true when it comes to your personal inflation rate? 

The latest Consumer Price Index (CPI) data, released on 22 May, revealed that inflation was 2.3% in the twelve months to April. That’s down from 3.2% in March. The April figure was slightly higher than some economists expected, but still takes us within a whisker of the Bank of England's 2% target. 

Amid the worst cost-of-living crisis in a generation, households have been following each inflation release with interest – you can see a list of upcoming dates in our CPI release calendar. As such, consumers will be pleased to see that price rises have slowed this again month. 

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Despite this, an important question for many households is: does the CPI shopping basket accurately reflect price increases in my own lifestyle? For example, air fryers and vinyl records were added to the CPI shopping basket earlier this year. 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. 

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.

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.

How is CPI calculated?

The ONS calculates CPI by looking at a representative shopping basket of UK household goods. It calculates how much the price of this basket of goods has gone up or down each month, which gives us the rate of inflation. 

The shopping basket is reviewed on an annual basis and its contents are updated to reflect changing consumer habits. The most recent reshuffle was announced on 11 March. 

What is in the ONS shopping basket?

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.

Will the rate of inflation continue to fall?

Inflation has now slowed considerably from its peak of 11.1%. However, it is important to note that this does not mean prices are falling. It just means they are rising at a slower rate. 

A big fall in the headline figure was widely anticipated this month, thanks to lower energy costs. The Ofgem price cap was cut by 12.3% from 1 April, causing the average energy bill to tumble.  

But where is inflation heading next?

The Office for Budget Responsibility (OBR) expects it to average out at 2.2% for 2024 as a whole, before dropping to 1.5% for the duration of 2025. 

Meanwhile, the Bank of England has said it expects inflation "to be around 2% in the coming months", before going "back up to around 2½% towards the end of the year", and then "falling again after that".  

All eyes are now on the Monetary Policy Committee and when it will start cutting interest rates

Many are hoping for a summer rate cut. However, given today's inflation reading came in slightly higher than expected (2.3% rather than the 2.1% economists had forecast), many experts are now ruling June out. 

The Bank of England has made it clear it will be led by the data – and UK wage growth (another key inflation indicator) also came in higher than expected earlier this month. 

We have pulled together a list of upcoming MPC meeting dates to help you keep track of each interest rate announcement as it comes out. 

Katie Williams
Staff Writer

Katie Williams has a background in investment writing and is interested in everything to do with personal finance, investments, and financial news. Before joining the MoneyWeek team, Katie worked as an investment content specialist at Invesco EMEA, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. She studied English at the University of Cambridge and loves reading, writing and going to the theatre.