My Inflation Isn't Like Your Inflation

We're all familiar with the term "inflation," and we have an idea of what it refers to: the increase in prices over time. You've probably seen the Consumer Price Index number, which is published regularly by the Bureau of Labor Statistics, and you may even know that over long periods, our inflation rate has averaged roughly 3%.

But there's a lot more to it than that. That 3% is an average, not just across time, but of the prices that millions of people pay for the things they typically buy. It doesn't necessarily reflect the inflation that you experience in your life.

The CPI incorporates price changes for a variety of consumer goods and services, such as household cleaning products, and water and sewer services. There are some variations on the basic CPI, too -- such as the "core" CPI, which excludes food and energy. Why exclude those? Well, they can be rather volatile. We've learned that about fuel costs the hard way -- between 2000 and 2012 and adjusted for inflation, the average price of a gallon of gas has soared from about $1.44 to $3.57 -- but it certainly hasn't been a steady rise. Instead, it has oscillated up and down repeatedly, and dramatically.

Food price inflation can be severe at times, too. The price of ground beef, for example, was recently nearly 6% higher than it was a year earlier, and steak prices were up nearly 9%. By excluding food and fuel, the core CPI is more stable and reflects a somewhat steady increase over time.

Digging into Details

Excluding food and energy from the inflation equation can make sense for economists, but none of us can exclude them from our budgets. However, each of us has our own particular spending pattern. Depending on how often you buy various items, inflation for you can be higher or lower than it is for your neighbor.

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For example, between July 2011 and July 2012, the price of fruits and vegetables fell by 0.7%, on average. That sounds great, but consider this: Fresh apples soared 9.8% in price, while fresh bananas rose only 0.2%. If you eat a lot of fresh fruit, inflation can have a different effect on your expenses, depending on your apples-to-bananas ratio.

Similarly, while ground beef and chicken rose 5.8% and 5.5%, respectively, fresh seafood shed 0.3% in cost, giving pescatarians an edge. (Unless they buy a lot of dried beans -- prices for those soared 15.7%!) If your daily breakfast is cereal, that rose 2.7%. If you favor bacon and potatoes instead, you enjoyed declines of 2.6% and 7.9%, respectively.

How you heat your home makes a big difference, too: Electricity fell 1.3%, piped gas fell a whopping 12.7%, and fuel oil fell 5.6%.

Small Numbers, Big Numbers

All these increases add up, and can put a severe crimp in our lifestyle -- especially since our average income has not been keeping pace with average inflation. Since the beginning of 2009 (a period that included the recent recession), the median household income in the U.S., adjusted for inflation, dropped 7.3%.

Consider that if you drive 12,000 miles per year and your car averages 20 miles per gallon of fuel, you're buying 600 gallons per year. When gas cost $1.44 per gallon near the turn of the millennium, your annual expense for it was $864. At $3.57 per gallon, though, it totals $2,142. It's quite a challenge for many of us to find an extra $1,278 in our budgets. On the other side of the coin, the growing numbers of people working from home some or all of all of the time stand to save a lot of money.

Inflation can have big effects on your personal finances, especially as high rates erode the purchasing power of your savings. But take those overall inflation numbers with a grain of salt, as they might not reflect the inflation that you are experiencing.

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.