inflation

What’s Your Personal Inflation Index?

by Vinaya HS on May 20, 2011

in Finance

To me, “inflation” is simple.

If last year, I was spending Rs 25,000 per month on an average and this year, if I am spending Rs 30,000 per month on an average, then my expenses have inflated by 20 percent — and that’s my Personal Inflation Index.

Simple.

Then, it really doesn’t matter to you one bit what the inflation indices at the national level are. You’d really really stand out if you were consuming the same basket of goods — and in the same proportion — as what goes into determining the national inflation indices. Of what relevance then is an 8% — or whatever percent quoted by [insert your favorite media house here] — national inflation index (WPI, CPI, et al.), when your personal expenses have gone up by 20% over the course of a year? Would you then be happy if your equity investments — the favored panacea for all inflation-related-worries — were earning a mere 15% per annum?

You obviously wouldn’t.

So, the next time you hear/read the word “inflation” stop listening/reading. Instead, focus all your energy on how best you can cut down your expenses so that your personal inflation index is at its minimum.

In my MBA classes, the answer to every other question was “inflation.” I doubt if anyone actually understood that term. No wonder then that this term is over-hyped!

What do you think?

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