This conversation – I call it “Me & You” on my Instagram channel – shows you a way to deal with inflation. By knowing the so-called shopping cart of the Federal Statistical Office, comparing it with your own consumer spending and drawing conclusions from it.
Inflation: what is the inflation rate?
Basically speaking, inflation expresses a percentage of how prices change over a period of time. When this rate is positive, it tells us that an economy’s prices are tending to rise. The result is that we can buy fewer goods and services with our money if we don’t get a wage increase of the same magnitude. So our purchasing power is falling.
On the other hand, if the inflation rate is negative, which also happens, prices fall on statistical average and we get more for our money. Purchasing power would increase here.
Inflation is calculated from a shopping cart
The monthly inflation is not a number that someone makes up. There is one behind this number Sisyphean task.
The inflation rate is based on a Shopping basket currently consisting of more than 650 everyday goods and services. She also officially has a different name. her name is Hharmonized VconsumerPrice-Iindex. Or in short: HICP.
The Federal Statistical Office Destatis puts together the shopping cart, together with and in comparison with the European statistical office Eurostat. Because the HICP is an index of all EU countries that have the euro as a means of payment.
Collect prices for the inflation rate
Every month, the national statistical offices, Destatis in Germany, send out price investigators. You write down the current prices of the 650 goods and services in the shopping basket using predefined lists. Either directly on site when roaming through various shops and supermarkets, or online via price research.
In 2010 I produced a 30-minute feature on the HICP – and accompanied price investigators in it. Unfortunately, the feature can no longer be heard, but you can still read it: Deutschlandfunk: Colorful mixture in the shopping cart
More than 300,000 individual prices come together when Destatis conducts price research. These are weighted and condensed into one number – the HICP.
The inflation rate is given in 2 ratios:
What does inflation measure? It measures how prices compare to that
1Before month or
2Ago-YEAR-Month have developed.
The inflation rates that I mentioned above was the price increase compared to the previous yearearmonth.
Statistical vs. personal shopping cart
The interesting thing about it is that each and every one of us does not consume all goods and services in the way the statistician’s basket of goods envisages.
And here we are back in the game.
Because we have a personal rate of inflation according to the products we consume. And that differs from the official one. Up or down depending on how close we are to the shopping cart.
If you eat meat from conservatively raised animals every day and I eat vegetables every day, for example, I spend a higher percentage of money than in the same month or quarter of the previous year. Because: Vegetables rose by 10% in February, meat by 4.1%.
(Meat is generally more expensive than vegetables, so the absolute price increase for meat is more important than for vegetables.)
Example, conventional farming:
Beef goulash, 1 kg: around 16 euros
Leeks, 1 kg: around 1.90 euros
For a meal you need about 250 g of goulash plus potatoes and salad, for example, or about 300 g of leeks, also with potatoes and salad. We only count the goulash and leek.
250 g goulash = 4 euros; 4.1 percent inflation means an increase of 16.4 cents.
300 g leeks = 0.57 euros; 10 percent inflation means an increase of 5.7 cents.
Personal inflation rate higher or lower
Since I don’t eat meat, for example, this “good” falls out of my shopping basket and is not reflected in my personal inflation rate. I also don’t own a car and don’t have to drive to the distant office every day. That’s another reason why the enormously increased fuel costs are of no consequence to me personally. Because I don’t have them directly. For me, they only occur indirectly through transport costs for groceries, etc.
And so it is with all the goods and services that we regularly inquire about. That is why everyone has their own inflation rate.
What to do against inflation?
This is a starting point for recognizing inflation and – at least in part – reducing it.
So look at the composition of the statistical shopping basket, the weighting of the individual goods and compare this with your expenses. Then you can roughly estimate your personal inflation rate. And you can see which prices have risen the most.
Knowing this, you can dodge, or look for an alternative, or leave something out…
The shopping cart as a price kaleidoscope
The Destatis price kaleidoscope shows you very clearly how the statistician’s shopping basket is made up and which consumer spending is weighted and how heavily it is weighted. To get to this interactive kaleidoscope, simply click on the image.
Screenshot
For that most noticeable price changes in February 2022:
Screenshot
What else helps against inflation?
Increase your income! This is something that many don’t see. At some point you will reach your limits with spending cuts. Logical. So always look at the other side, the income side, not just the expenditure side.
Negotiate a higher salary if you are employed. Or try to move to a better-paying job. If you’re a freelancer, consider adjusting your fee or adding higher-paying aspects to your service. Get creative.
When it comes to spending, we will eventually reach the limit of what is feasible. The income side, on the other hand, is open-ended.
And what else helps?
Invest in real assets.
Tangible assets protect money saved from inflation. If you want to learn investing, come to my wealth course. I offer the online course with 8 live webinars, which I personally accompany, 3 times a year. It lasts 8 weeks. You will then see money with different eyes, understand the economy and the stock market, have a securities account and share ETFs. And handle money better too. 😉
Here you can find all course details