For months, news outlets have been reporting record-high inflation rates hovering at about 9%. But is that really accurate? For most Americans, the answer is a surprising NO! Here’s why. As of this writing, consumer prices are up 9.1% in the US and 8.1% in Canada. In the US, that’s the sharpest year-over-year increase since 1982. While the dramatic rise is sounding alarm bells for economists, most households are already feeling the pinch. In fact, for many North Americans it feels like a lot more than even 9%—and that’s because it probably is.
ECONOMY & CULTURE
DETERMINING YOUR PERSONAL INFLATION INDEX If you have access to old bank and credit card statements, it’s not too hard to find out how inflation is affecting you personally. There are two methods of determining your personal inflation index: monthly or annually. The best data produces the most accurate results, so including as much information as possible will give you the most realistic picture. MONTHLY INCREASE The monthly method is the simplest and gives you a quick snapshot of your inflation rate. Grab your spending from July 2022 and July 2021. Make sure you include housing, food, household goods, fuel/transportation, cell phones/internet, gym memberships, cable/streaming services, apparel, utilities, dining/entertainment, insurance premiums (health, home, and auto), and any other recurring
COMMON MEASURING TOOLS When it comes to inflation in the US, there are two main measurements: the Consumer Price Index (CPI) and core inflation. CPI is determined by the Bureau of Labor Statistics and is the most widely used measure of inflation. It is
entitlement programs, but it also gave us a skewed vision of inflation. According to Williams, today’s inflation numbers would be closer to 16% if they were calculated using the formula used prior to 1983. The American Institute of
COST INCREASES MAY 2022 VS MAY 2021*
Economic Research has created an Everyday Price Index (EPI) that adjusts CPI’s basket of goods to only include “everyday” items—eliminating infrequently purchased items, such as furniture and vehicles. According to their calculations, the EPI is averaging 20.6% so far in 2022. While these rates are far higher than those used for the national average, they’re probably a more accurate reflection of what’s hitting the pocketbooks of your
calculated by creating a “basket” of goods and services and then comparing the cost of the basket this month with the price one year ago. By design, it is an average with the goal of representing 93% of the US population. And while it is an accurate average, your own personal inflation rate can differ dramatically depending on
Food at home 11.9% Food away from home 7.4% Rent/housing 5.1% Gasoline (gallon) 51.3% Electricity 12% Natural gas 30.2% Health insurance 13.8% Household furnishings 8.9% Haircuts/personal care 6.2% Cable/satellite TV 5.8% Airline fares 37.8% Hotels/lodging 19.3% * Data from the US Bureau of Labor Statistics and AAA.
expense. Then plug it in to this formula: (2022 Cost – 2021 Cost) ÷ 2021 Cost. Then multiply that number by 100. For example, if your
4,050 (2022 Cost) – 3,500 (2021 Cost) = 550
July expenses this year totaled $4,050 and last July they were $3,500, your personal rate of inflation would be 15.7%. ANNUAL INCREASE
where you live in the country, how much you travel, and other factors. Core inflation is the measurement used by economists and the Federal Reserve. It is similar to CPI but does not include factors deemed “volatile,” such as food and energy prices. This is the number the Federal Reserve looks at when determining changes to the federal interest rate. While it is useful in determining how well the Federal Reserve is achieving its price stability goal, it’s not accurate for most consumers. CREATING MORE ACCURATE MEASUREMENTS Data is only valuable if it is calculated correctly and accurately. While many may look at today’s inflation rate and take some comfort in the fact that it’s not the staggering 14.8% the US saw in March of 1980, that may not be a true apples-to-apples comparison. In 1983, the US changed the way it calculated inflation. According to economist John Williams, the move was made to help limit cost-of-living adjustments to federal
550 ÷ 3,500 = .157 .157 x 100 = 15.7%
friends and neighbors. A SOLUTION WAITING TO BE SHARED
The annual increase method follows the exact same formula as the monthly increase but will likely be more accurate because it includes expenses that hit your budget but don’t happen every month. Take the annual spending for all the categories you used in the monthly increase and add all travel, hotel, medical, and pet expenses and all other single or nonmonthly costs. Since 2022 isn’t over, use the amount paid from January to June and then double it. Add in your single expenses, being sure to add estimated expenses for upcoming travel or medical treatments. Now plug your numbers in to the same formula: (2022 Cost – 2021 Cost) ÷ 2021 Cost. Then multiply that number by 100.
Bloomberg economists predict that because of inflation, the average US household will have to spend $5,200 more in 2022 than they did in 2021 for the same goods and services—that’s an additional $433 more per month! Even if your friends and neighbors aren’t talking about tightening their budget, chances are they are scrambling to make up the difference. As a Melaleuca Marketing Executive, you have a real solution that could make a lasting difference. Helping them start and advance a Melaleuca business to Director 3 status or above could not only help them lessen the impact of increased costs but also let them fill their home with exceptional wellness products at reasonable prices. Who will you contact first?
For example, if your 2022 expenses are likely to be $71,700 and last year they were $61,000, your personal rate of inflation would be 17.5%.
71,700 (2022 Expenses) – 61,000 (2021 Expenses) = 10,700 10,700 ÷ 61,000 =.175 .175 x 100 = 17.5%
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These results are not typical. Consult the Annual Income Statistics on page 58 for typical results.
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