Halve Your Personal Inflation!

By being a below-average Fool, you can reduce the effect of rising prices and effectively give yourself a pay rise. Here's a tool that may help.

The Office of National Statistics (ONS) has launched a personal inflation calculator to help us work out the effect of rising prices on our finances. At first, I couldn't get it to work. A colleague joked satirically: 'It doesn't matter, whatever you typed in, it would say 3%', which is the government's figure for inflation based on the Consumer Prices Index (CPI).

In fact, the calculator is based on all the expenses that make up the Retail Prices Index (RPI), which is a more comprehensive measure of inflation. This ended 2006 at a fifteen-year high 4.4%.

With the calculator out of order, I worked out my personal inflation rate the hard way. I took data from the Office of National Statistics' RPI tables and correlated it with my own spending records. I reckoned that my inflation is a satisfyingly low 2.2%, which is half the 'average' inflation rate of 4.4%.

I eventually got the ONS' personal inflation calculator working. My cynical colleague would have laughed. Many expenses that I don't have, such as mortgage interest payments, tobacco and car maintenance, have been hit badly by inflation. However, even missing those out, my performance according to the calculator was virtually identical to RPI over the year. This means that up till November 2006 (which is the latest period the calculator goes up to), my inflation came in at 3.9%, which is precisely what RPI was in that month.

We have to take the calculator's figures with a pinch of salt. Unlike the ONS, I know where I've managed to save money; for example, I renegotiated phone and broadband contracts so that they were 10% cheaper than a year earlier, beating phone charges inflation. Also unbeknownst to them, my gas and electricity prices did not go up by the average, because I switched utilities supplier.

Furthermore, the calculator doesn't deal well with entertainment expenses. I spend a lot on gigs and live comedy, the prices of which haven't changed much recently. However, if you like going to see football matches, you may have found your expenditure going up by 17% in 2006, according to Virgin Money.

The thing is, none of us are average. Fools, certainly, are far from normal! Who wants to be normal anyway, if it means inflation wipes out your pay rise?

Simple tricks, such as renegotiating mobile phone contracts and switching gas and electricity suppliers will have a significant impact on your personal inflation. You effectively give yourself a pay rise if you look for cheaper entertainments and shop around for the best prices. You can start here at The Fool. This is a price comparison website after all!

> Fools are not statistical averages! Compare car insurance quotes and beat inflation!
> Get ideas to beat inflation from Fools on our Money Saving Tips board.