Inflation Gets Personal

Inflation is defined as the long-term, sustained rise in the general price level of goods and services. The most popular measure of inflation is the Consumer Price Index.

The CPI, calculated monthly by the Bureau of Labor Statistics, tracks prices for a basket of commonly used goods and services (such as food, clothing, housing, and medical care) to measure inflation at the consumer level. In 2009 the inflation rate was 2.72%, but over the past 30 years inflation has averaged 3.51% annually.¹

The CPI attempts to measure the rate of inflation experienced by the average American, but this figure may not be entirely applicable to your situation. For example, depending on your lifestyle and where you live, your costs for housing, food, and medical care may vary significantly from the national averages.

Because the CPI may have only limited usefulness when trying to measure how inflation affects your personal finances, the accompanying worksheet can help estimate your personal inflation rate. This information may help you better understand how inflation could affect your financial future, especially retirement.

1) Thomson Reuters, 2010 (CPI for the periods 12/31/2008 to 12/31/2009 and 12/31/1979 to 12/31/2009)

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