The year 2022 has not been friendly to American consumers. According to an article from CNN, inflation hit a 40-year high in June, driving prices up across the board in virtually every category. But this dramatic rise in inflation doesn’t mean that every American has been impacted in the same way.
For example, much of the rise in inflation in the last year can be linked directly to increasing energy prices, which doesn’t affect all Americans equally.
Understanding how your personal budget is impacted by inflation can give you a better glimpse into how inflation has changed your day-to-day expenses.
Why Is Inflation on the Rise?
Inflation has been out of control for much of 2022, reaching highs that haven’t been seen in decades, to the point that most Americans are feeling the impact to some extent.
According to the U.S. Bureau of Labor Statistics, consumer prices in May were up 8.6% over May 2021. The rise in prices has only continued to accelerate, with June’s year-over-year rate of inflation coming in even higher.
There are a few different factors that came into play at the same time to create this explosive situation, but it can unsurprisingly trace its origins to the COVID-19 pandemic.
According to the Associated Press, the economic state created by the pandemic directly led to the inflation effects that Americans are feeling nearly two years later. Things were looking bleak early in the pandemic, but the economy unexpectedly surged instead of slipping into a lengthy downturn like many expected.
This surge resulted in an explosion in demands for goods and services from their early pandemic lows. But supply chains that were already struggling were overloaded with the new demand and simply couldn’t meet it.
That led to scarcity of items in relation to demand, rising prices and much of the inflation that Americans are now dealing with.
Those existing issues were also heavily exacerbated by the Russia-Ukraine war, which quickly led to skyrocketing prices for energy and some food.
Since several different key factors have contributed to the dramatic rise in inflation, it may be a while before Americans see that rate slow down.
Calculating Your Inflation Rate
Calculating your own inflation rate can help you to get a better understanding of where you are being hit the hardest – and may help you identify spending habits that you can alter to make a difference.
The key to determining a personal inflation rate is identifying which areas of inflation directly relate to you. The rising price of gas will be represented much more in the budget of someone who drives to work every day than someone who works remotely, for example.
Determining your personal inflation rate will require research. One of the most straightforward ways to go about it is to go a year back and look at your expenses for May or June 2021.
To the best that you can, try to group your expenses into the categories that the Consumer Price Index measures. The more specific you are, the more accurate your result can be. For example, the CPI measures the inflation rate for food, but also the differences between food away from home and in-home meals.
Once you have broken down your expenses into the different categories, from food to apparel, you can multiply each category by its inflation rate according to the CPI. Add all those new figures together, and you’ll have how much all your May or June 2021 expenses would have cost you this month.
If you divide that new figure by how much those expenses actually cost a year ago, you’ll have an estimation of your personal inflation rate.
Calculating a personal inflation rate is not an exact science, especially since prices are continuously changing. But following these steps can give you a snapshot of how — and where — your expenses have changed in the last year.