Real inflation rate

Inflation is the usual statistics of any state economy in the World. The constant growth of prices is a reality, sometimes it can be really fast. But sometimes it is difficult to believe the statistics.

For example, the statistics report that the inflation rate is 4%. But according to the personal perception, prices rose by at least by 10% this year. Who is right? Personal feelings, or accurate, mathematical statistics? Where is the truth?

Some economists point out that people notice a rise in prices better than their decrease. Because negative changes cause significantly more emotions than positive changes.

For example, we will be more upset, if we lose 10 dollars, than we will be happy, if we win 10 dollars. Let’s return to inflation (as a statistic parameter) counting technique.

During calculating inflation and prices growth, a certain set of goods and services are taken into account. Next comes the averaging action. Not all these goods are usually purchased by you, as a concrete person. Also usually you buy a lot of other goods, which are not in the list.

As a result, the actual inflation rate for you may be different, than nominal inflation (like average temperature of all patients in a hospital). As a result, inflation is more just a statistical indicator, if we discuss personal economics.

Solution

I can suggest simple, non professional solution. We can evaluate real inflation by interest rates (%) of loans. Some middle value between a mortgage and an ordinary loan interest rates. Because in many countries mortgage can be subsidized by government.

However, a consumer loan includes a large bank margin. So, somewhere between this parameters there is a truth value of real inflation, in my opinion, which will allow you to estimate the percentage that will characterize the year changing of the personal financial system, due to inflation.

Author: Evgenii Golygin
Date: 18 August 2018, Saturday