The importance of understanding your own personal rate of inflation

It’s hard not to feel the pinch of inflation now, from the weekly food shop to paying your gas and electric bills, the effects of inflation are everywhere. Inflation had been creeping up since last summer and hit its highest level in over 30 years in October last year, before beginning to fall back.  

The latest figures from the Office for National Statistics (ONS) show that inflation fell to 7.9% in the 12 months to June, a moderate decrease from May’s headline inflation rate of 8.7%. Whilst encouraging and a larger drop than analysts expected, the UK’s headline inflation nevertheless remains the highest out of all other G7 countries. 

The significant drop in the price of liquid fuels like petrol was one of the biggest contributors to the larger than expected fall in inflation. However, with a few exceptions, the prices of most general goods continue to not only remain high but are still increasing. The average household won’t care about a marginal decline in the rise of headline inflation though, they just want prices to go down. And as we’ll reveal in our examples below, we’re still a fair way away from that. 

Although prices are now hopefully not rising by as much as they were, there are generations of people who have never experienced the potent effects of high inflation that we’re currently living with. And we must not forget that although the rate of inflation is coming down, it’s still rising, just not by as much as it was, so those price rises remain high for most goods and services. It’s little surprise then, that consumers are having to think twice about their purchases, whether that’s at the supermarket or for larger ticket items. 

Headline inflation is important to understand as it shows how prices are rising as a whole, however, this figure is not accurate on an individual level. How we live our lives and ultimately spend our money will determine what our own personal rate of inflation will be. Our lifestyles may be wildly different, so it’s important to understand how the cost of living increases are really affecting you, as it it likely to be very different to the rates you see in the news. 

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What is your ‘personal rate of inflation’? 

Unlike the overall rate of inflation which calculates the national average changes in the cost of all items, your personal rate of inflation is representative of your exact spending patterns. This means lifestyle factors such as choice of transport, brands, eating and drinking habits all play into what your personal rate of inflation looks like. Essentially, your personal rate of inflation represents how your personal cost of living is rising, irrespective of the national average figure.  

Generally, if you spend relatively more on items with low price rises, you will have a lower personal rate of inflation than the national average rate, and if you spend relatively more on items with large price rises, you will have a higher personal rate of inflation than the national average rate. The goal in calculating your personal rate of inflation is to give a true representation of how you, as an individual consumer, are being affected by inflation.  

An easier way of thinking about this is to imagine a ‘shopping basket’ containing all the goods and services bought by a particular household. Depending on what goods and services the household decides to purchase, the basket is filled accordingly until it contains everything in representative quantities of what that household consumes in a year. The average taken from the inflation of all the items in your basket will ultimately reveal your overall personal inflation rate.  
What do the latest figures show?

By breaking down the latest ONS inflation figures (June 2022 – June 2023) and comparing the inflation rate of different services and goods, we can see how your personal rate of inflation changes, based on what lifestyle choices you make.  
Here are some examples of how it could significantly affect the pounds in your pocket. It’s important to remember that these examples are only comparing the relative rate at which the prices of these items are increasing, and so do not reflect the actual prices of these items, only their rate of inflation. For example, mineral water has a higher inflation rate than wine, but wine is still more expensive than mineral water (for now!). In the below examples, we’ve compared the inflation rates of different items using the latest ONS data.

Ice Ice Baby?

When it comes to reducing your personal rate of inflation, the difference between buying food for your fridge and your freezer may not be the first thing that comes to mind. But for frozen vs chilled seafood, the difference could not be more stark. Fresh / chilled fish is sitting at 16.6% while frozen seafood is sitting pretty at 8.8%, nearly half the inflationary value. And the good news is that if you stock up on frozen seafood, even if the rate of inflation increases, you’ll already have plenty ready to defrost. Just make sure you buy a big enough freezer (which are themselves rising at 8.3% inflation)!

When a spoonful of sugar leaves a bitter taste

Baking enthusiast? Birthdays coming up? Or maybe you’re one of those who likes to lick the cake mix straight from the bowl. In any case, you’re out of luck. Eggs and sugar, two of the most important ingredients in any serviceable cake, are some of the hardest hit by price inflation.  
The increase in the price of eggs in the 12 months to June 2023 was 28.6%, and while this is down from April when it was rising at 37.8%, anywhere near 30% is a no-go when it comes to bringing down your personal rate of inflation. But eggs have nothing on our devil of the inflationary race – sugar. Sugar is leading the charge with a staggering 53.6% rate of inflation.

Time to hang up apron and put down the whisk for a little while. It’s tough to say no to baking cakes for the sake of your personal rate of inflation, but you know what they say – if you want to make an omelet, you gotta break some eggs. Or maybe don’t, in this case.

Planes, Train or Automobiles? 

With the high cost of public transport services in the UK, there has been a lot of debate around which method of public transport gets you the most bang for your buck, with some even arguing that at the rate at which train prices are increasing, you might be better off just booking a flight rather than taking the train for a trip across the country.  
However, as far as minimising your personal rate of inflation is concerned, this could not be further from the truth. The current rate of inflation in passenger transport by air is at a considerable 26.7% while passenger transport by train sits at a modest 6.6%. Save both your personal rate of inflation and the environment by picking trains over planes. 
Perhaps the most pertinent fall in inflation is the cost of fuel, with petrol and diesel falling at -22.3% and -24.3% respectively. Liquid fuels in general are deflating at an impressive -45.6%. So, it might be time for that road trip.  

Turn water into wine?  

They say you cannot survive on bread and water alone. That’s why you should switch over to bread and wine instead. It may be hard to believe, but wine is actually one of the least affected alcoholic beverages by inflation at just 4.3%. Conversely, mineral and spring water inflation is at nearly 20%, over four times as high as wine. And just for the record, bread is at 16.7%, so maybe forget about the bread as well and just have the wine. Seems more than reasonable. Cheers!

The Deflationary Ones 

With so much doom and gloom around rising inflation rates, it’s important to pick out a few items that are actually coming down in price. Not just no longer inflating, but actually deflating as their price comes down. 
In addition to fuel, some miscellaneous standouts include personal computers (-3.8%), which have been deflating in price every single month in the past 12 months to June, and non-motorized small tools (-0.6%), which have dropped into deflation for the first time in June.  
We hope to see the cost of many more items follow suit as inflation comes back under control. 

What do these figures mean? 

Typically, lower income earners spend a much higher portion of their income on food, energy, and other staple goods, while the wealthier have more freedom of choice in whether to dine out, change living environments or cars. The monetary freedom allows them to be more adaptable, while poorer households are stuck in a constant effort to keep up with the inflation rates of basic necessities such as heating and food bills. 
However, it is important to note that the primary factor in how high your personal rate of inflation is depends on your individual choices as a consumer. The difference between fresh and frozen fish may be trivial by itself, but by being conscious of the individual rate of inflation of different products and services and choosing the options that are less affected by inflation, anyone can bring their personal rate of inflation down significantly, and ultimately save significant money over time. Whilst it’s impossible to completely incubate yourself from the effects of inflation, you can reduce its influence by buying smart. Don’t forget that, as the consumer, you have the power to choose.

For more information about how inflation may be eroding your savings, take a look at our inflation calculator:

If you are concerned about how inflation may be affecting your savings and investments, why not get in touch and see if we can help. For all those with £100,000 or more in savings, pensions, or investments we are currently offering a free review worth £500. You can request a free non-committal initial consultation with a member of our team or give us a call on 033 323 9065 to get in touch.

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