The Inflation Experience Is Painful — and Personal

Inflation is a sustained increase in prices that reduces the purchasing power of your money over time. According to the Consumer Price Index (CPI), inflation peaked at an annual rate of 9.1% in June 2022, the fastest pace since 1981, before ticking down to 6.5% in December.1

The CPI tracks changes in the cost of a market basket of goods and services purchased by consumers. Items are sorted into more than 200 categories that are weighted according to their “relative importance,” a ratio that represents how consumers divide up their spending, on average. Basic needs such as shelter (33%), food (14%), energy (8%), transportation (8%), and medical care (7%) account for more than two-thirds of consumer expenditures.

The recent bout of inflation has been driven in large part by steep price increases for essentials, which means it’s hitting many U.S. households where it hurts. Even so, some consumers feel the sting of inflation more than others.

The extent to which you experience inflation depends a lot on your spending patterns, which are influenced by where you live as well as your age, income, family size, and lifestyle. In effect, your personal inflation rate could be significantly higher or lower than the average headline inflation rate captured in the CPI. Consider the following examples.

Top Inflation Drivers 

Contribution to the 12-month, 6.5% increase in consumer prices, December 2022

Contribution to the 12-monthm 6.5% increase in consumer prices as of December 2022: Shelter: 38%, food 21%, transportation 11%, Energy (gas and electricity) 8%, household furnishings and supplies 4%, medical care 4%.

Source: U.S. Bureau of Labor Statistics, 2023