Personal inflation refers to the increase in the cost of goods and services that an individual, household, or a group of individuals experiences over a certain period of time. It is a measure of the change in the general price level of the goods and services that a person or a group of individuals purchase for personal consumption. Personal inflation differs from the general inflation rate, which is the average increase in prices across the entire economy.
Personal inflation in India is influenced by several factors, including the individual’s income, spending patterns, location, and demographics. For example, the cost of living in metropolitan cities such as Mumbai, Delhi, and Bangalore is higher compared to smaller towns and rural areas. As a result, the personal inflation rate for individuals living in metropolitan cities is likely to be higher.
Food and fuel prices are the main drivers of personal inflation in India. Food constitutes a major portion of the household budget, and any increase in food prices can significantly impact personal inflation. Fuel prices, especially diesel and petrol prices, have a direct impact on the transportation and logistics costs of goods and services, which can lead to an increase in the prices of various goods and services and result in personal inflation.
In addition to these factors, education expenses, especially for children, can also significantly impact personal inflation. The cost of education, including high school and college fees, is rising annually at around 10% to 15%. This can be further compounded if the children go on to pursue high-cost professional courses such as engineering, medicine, or management, which can result in even higher education expenses.
To illustrate the concept of personal inflation, let us consider a hypothetical scenario where a family of four resides in Bangalore and has a monthly household income of Rs. 50,000. Their monthly household budget is as follows:
- Rent: Rs. 20,000
- Food and groceries: Rs. 15,000
- Utilities: Rs. 5,000
- Transportation: Rs. 5,000
- Miscellaneous expenses: Rs.5,000
- Let us assume that the general inflation rate in Bangalore ranges from 8% to 15% in various categories. Further, let us assume that the high school and college fees for the children increase by 10% annually. Given these assumptions, the total increase in the household budget due to personal inflation will be as follows:
- Rent: Rs. 20,000 x 8% = Rs. 1,600
- Food and groceries: Rs. 15,000 x 10% = Rs. 1,500
- Utilities: Rs. 5,000 x 10% = Rs. 500
- Transportation: Rs. 5,000 x 10% = Rs. 500
- Miscellaneous expenses: Rs. 5,000 x 10% = Rs. 500
- Children’s education: (Rs. 10,000 x 10%) + (Rs. 10,000 x 10%) = Rs. 2,000
- So, the total increase in the household budget due to personal inflation will be Rs. 1,600 + Rs. 1,500 + Rs. 500 + Rs. 500 + Rs. 500 + Rs. 2,000 = Rs. 7,600. This implies that the personal inflation rate for this household would be 15.2% p.a. (Rs. 7,600/Rs. 50,000 x 100).
- In conclusion, personal inflation is a crucial concept for individuals and households to understand as it helps them to plan their budgets and finances effectively. The personal inflation rate can be influenced by various factors, including food and fuel prices, location, education expenses, and income. In India, the personal inflation rate can vary significantly across different regions and income groups. By considering their specific spending patterns and lifestyle, individuals and households can better understand their personal inflation and make informed financial decisions.