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Why your personal inflation rate matters

Why your personal inflation rate matters
Warren Ingram
By Warren Ingram
12 May 2025
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The official inflation rate might not match your own experience. Here’s why it’s vital to track your personal cost of living.

The publication of the national inflation rate often sparks controversy because very few people experience the same increase in their cost of living as the national inflation rate indicates.

Some individuals even believe that these numbers are manipulated, and most feel that their cost of living is rising faster than the national averages. There may be instances where a country’s inflation rate is miscalculated, but in most cases the issue arises from a lack of understanding rather than any conspiracy.

The national inflation rate is important to you. Still, you should strive to determine how your own cost of living changes each year, because financial planning is based on your cost of living and the projected increases over your lifetime.

Why personal inflation rate may differ from the official inflation rate


The Consumer Price Index (CPI) is useful for tracking price changes over time for everyday items you buy, such as food, as well as rent, clothing and fuel. It provides a clear picture of whether the cost of living is rising (inflation) or falling (deflation).

Both governments and businesses depend on the CPI to inform decisions on crucial matters such as wage increases, pensions and interest rates. Ultimately, it helps everyone understand how much more – or less – things cost compared with the past. Significantly, the CPI is based on an “average” basket of goods that economists believe are most relevant to most of the population.

Read more: Annual CPI picks up to 3.2% in January while food price inflation maintains downward trend

Averages are helpful, but every household spends differently. If you spend more on items that have sharply risen in price (such as fuel, dining out or healthcare), your personal inflation rate will be higher than the official figure. Conversely, if you spend less on those categories, your rate could be lower.

Why is it important to track your personal inflation rate?


Almost all financial planning hinges on understanding your current cost of living and projecting how it will change over your lifetime. When you know your current cost of living and how it has increased over the past few years, you can make a more accurate projection of how it will increase in the years ahead.

If your personal inflation rate is high, you should invest more money in growth assets such as shares, property companies and global investments, which have a better chance of matching or beating the pace of your cost-of-living increases. More stable and predictable assets such as fixed deposits, money market accounts and guaranteed products offer limited inflation protection.

Track your personal inflation rate


I like to track my expenses over a typical three-month period, such as April, May and June. This excludes the December-January holidays, when my costs might be higher than usual. Once I have the full tally of my expenses for these three months, I divide the total by three to obtain an average monthly amount.

I then compare this to the same three-month period from a year ago. If my expenses are now higher, I calculate the difference as a percentage to understand my personal inflation rate. I try to do this every year to help measure the trend because expenses don’t increase by the same amount each year.

Alternatively, you can monitor how medical care costs are rising yearly to benchmark how much your cost of living is changing. It’s probably close to 9% annually, often much higher than CPI. Remember that this is only an average and might not reflect your personal inflation rate.

Another alternative is to use the upper end of the South African Reserve Bank’s inflation target of 3% to 6% per year. It is a fair assumption that most of us will fall into this inflation range over time, so 6% might be a prudent assumption for your personal CPI.

Read more:  Reserve Bank’s lowering of the inflation target could damage South Africa’s prospects for growth

What this means


The next time you read an announcement of the new CPI numbers, try to take note of the figure. Although your spending might not mirror CPI precisely, you will probably experience a similar overall trend.

Understanding your personal inflation rate is crucial for effective financial planning because it clarifies how your lifestyle, spending habits and goals influence the actual cost of living over time. Although national inflation rates provide a general benchmark, they may not reflect your experience, especially if your expenses are concentrated in areas such as healthcare or education, which can rise at different rates.

By monitoring your personal inflation rate, you can make more informed decisions about budgeting, saving, investing and adjusting your financial plan to preserve purchasing power and maintain your desired quality of life over the long term. DM

A note on averages


I think averages can be useful in understanding broad trends, but they can also hide some vital information. For example, if your child studies two subjects at school and comes home with a report showing the average mark is 50%, you might think this is okay. However, when reading more detailed information, you discover that your child received 100% for one subject and 0% for the other. The average mark is 50%, but there is a major problem when you get 0% for a subject. DM

Warren Ingram is a certified financial planner at Galileo Capital.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.




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