Wednesday, July 18, 2007

How can I get most updated inflation rate?

This is FAQ and if you ask this question most of the answer you will get is refer to national inflation rate. This information can be found in your local newspapers or you can just refer to here. But, this is crap! Reason is this value doesn’t represent the real inflation that you are having. National inflation rate just a rough estimated value. What you really need is the personal inflation rate but not the national inflation rate.

The national inflation rate is measured by the consumer price index (CPI) and the producer price index (PPI). The CPI measures the retail price movement, while the PPI measures the cost of inputs to the producer or manufacturer. These figures are the closest indicators of prices levels but do not reflect the actual personal inflation rate.

Unfortunately, there are many basic items, which are controlled items whose prices are kept down by the regulating authorities, in the basket of goods that make up the CPI. So, your personal inflation rate may actually be higher if you are consuming items that are not covered by the CPI.

So, the most updated inflation rate you want to find is your own personal inflation rate. Your actual personal inflation rate depends on what and how much you are consuming. To get your own personal inflation rate, you can just simply calculate % of increase of your expenses yearly. You will surprise with the % of your personal inflation rate. How far is it from the national inflation rate? You will understand why I said national inflation rate is crap and not accurate.


Michael Tsen said...

I couldn't agree more, National reported inflation rate is for "Everybody", and I am NOT Everybody.

But sometimes it is hard to come up with a personal inflation rate because I do not know if that rate is caused by inflation or just personal living standard elevation.

For example, at good times my personal expense rate could be increasing at 25-40% annually. When business goes soar and we have to move to smaller houses etc, personal expense rate decrease by 30-50% ....

So indeed I only calculate the rate of "food price consumed by middle class people", market stalls, small size restoran etc. Another good index I used is "supermarket rate". I used to be able to get Sardin can food in less than RM 3, now the cheapest is RM 3.69. I used to pay less than RM 1 for Cola and Pepsi, now its RM 1.XX etc.

ChampDog said...

"Supermarket Rate" is a good idea. This is the first term that I heard to use to represent the personal inflation rate. But every goods have a different rate and you’re going to take the average?

I’m not sure if “Supermarket Rate” can be applied to me, as I don’t really good in that kind level of details. I knew my monthly spending is $3K and I will make sure my spending won’t go beyond that.

To make things simple, I would probably include my personal living standard elevation as part of my personal inflation rate. During good times, my expenses increase by 20% but ultimately during bad times, I would like to maintain it at 20% or more. I don’t want to downgrade my life style. If I can’t make it, then I don’t spend so much even though during good times.

Stay in simple life. Again, talk is always easy.

rate said...

Not many people know these details about the inflation rate. Not many people know how inflation rate can affect their financial security, and that is why they are fooled easily by the authorities.

ChampDog said...

Yes, that's the problem. So, we shouldn't use the national inflation rate as a reference as it doesn't reflect to your own actual inflation rate. :)

rate said...

Still, the national inflation rate is a reference to relate to.

ChampDog said...

Not for personal I think. It is a good indicator as an overall inflation rate of a country.

Anonymous said...

I was offered a saving plan that gives 4 times higher than FD rate. The return is around 12-15%. Should i go for it?

ChampDog said...

What type of saving plan is that? Or is this an investment plan instead? Theoretically, saving plan is always below FD rate. :)

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