Each of us, feeling the slow simmer.
Inflation is one of the inevitabilities of modern life, as certain as time (or death and taxes). Prices are rising, currencies are weakening, and what once was enough to buy a quick sandwich for lunch is now just enough bread.
This quiet creep is woven into the order of things; An additional layer of taxes on money that is already taxed. It silently eats away at every wallet: the rich, the poor and those in between.
The poor find it first and foremost difficult; Every increase in prices eliminates needs, not options. The savings of the middle class have reduced. Prosperous people may last longer and smile despite the pressure, but eventually everyone feels the erosion not only of wealth, but also of certainty.
salt in the system
A little inflation is considered healthy because it signals that demand is alive and production is increasing. As economist John Maynard Keynes said, mild inflation indicates that the economy is realizing its potential. It is a component of the engine of growth.
Companies can continue to raise prices as people continue to earn more, spend, and invest more.
Zero inflation, in contrast, points to stagnation: weak demand, falling profits, idle capacity. When prices do not rise, wages do not rise; New ideas do not come to fruition.
Economists such as Keynes and James Tobin argued that nominal inflation slows down the wheels of the labor market. This allows real wages to be adjusted without direct wage cuts while keeping employment stable.
For this reason, central banks aim for an inflation rate of up to 4%. It is seen as high enough to encourage borrowing and enterprise, but low enough to maintain confidence (in the economy and money).
Then again, a little inflation is like salt in one’s diet. In large amounts, it can put a strain on the system, causing every meal to taste bad.
rent bill
How is inflation measured?
The government tracks average price increases across various sectors (food, fuel, housing, healthcare, as well as other key goods and services).
There are separate consumer price indices (CPIs): for rural areas and urban areas (as well as combined); For Industrial Workers (IW); For Agricultural Laborers and Rural Laborers (AL/RL). Each has a different purpose. The Reserve Bank of India uses the CPI-Combined, which is also the headline inflation measure, as its target metric. CPI-IW forms the basis of dearness allowance revision. CPI-AL and CPI-RL are used to determine minimum wages for rural workers.
Consumer inflation around the world is primarily food-based. This is also the area where most consumers feel prices rise most intensely. But each person’s spending mix is ​​unique, which means each of us experiences inflation differently.
A family feels it in groceries and rent, a caregiver feels it in hospital and nursing fees, a student feels it in fees. This is your personal inflation index, the personal mathematics of each life. This shows how far your money is spread, no matter what the headlines say.
While official figures point the way, the individual wallet tells the reality.
So, in the end, official inflation is a comprehensive map. Each life represents a real terrain.
menu options
What does real inflation look like for an urban household today?
For many people, including me (and we are statistically part of the top 1% in India, as is the upper-middle class), grocery and instant-commerce apps have become the default way to shop for household items. This habit has taken root and is sticking during the Covid-19 lockdown.
We are regulars on a big-name platform since 2019.
For the purposes of this analysis, I reviewed nearly 400 orders over five years to track price changes and create a household-level index. The prices include the effects of discounts and promotions as well as the convenience premium of home delivery. Our brand choices have remained consistent, allowing for like-for-like comparisons. Our purchases are not extravagant but not the lowest priced either.
Vegetables have been excluded because they are highly variable and constitute only a small part of our household budget. What follows is a snapshot of the price rise experience of a family of four in Bengaluru (my wife, me, our daughter and my mother).
Within our basket, a pattern emerges: proteins grow faster than carbohydrates. The price of items like cheese, avocados and even our oat and almond cookies have risen sharply, while staple foods like flour, sugar, butter and tea have remained stable. In other words, the essentials packed in nutrition cost more every year and, conversely, fillers are more affordable.
Orange prices have increased by more than 19% every year; Cheese more than 18%; Shampoo increased by about 13% and toothpaste by about 12%.
Overall, for my family’s basket of 40 items, we have experienced an inflation rate of 8.1% per year, while the official consumer price inflation rate is less than 5%. (See charts below for more detailed explanation.)
The details will vary, but I’m pretty sure that, if you practice like this, your personal inflation numbers will be much higher than headline inflation.
beyond the basket
Even that is not the complete picture.
For most of us, groceries constitute a small part of monthly expenses. The biggest hit comes from large recurring expenses like rent, school fees and fuel. Here, prices have risen sharply and remain high.
School fees and transport costs have risen rapidly (see accompanying chart), rising well above headline inflation year on year. Health care costs, including routine consultations, have steadily increased. Rental rates, which had stagnated during the pandemic, have soared amid a wave of return-to-office.
In places of leisure, or in expenditure beyond these needs, the same pattern applies.
Eating out, plane tickets and clothing all show price spikes that exceed the national inflation rate. These are everyday indicators of an economy that is growing in aggregate numbers but outpacing household budgets (even those of the top-quartile) in real terms.
This is the lived reality of inflation that no national index can fully capture.
What explains the difference between official and personal inflation rates?
Certainly, there are some time-frozen elements in the CPI indices, reflecting the base year and basket from 2011; In 2026, it will be updated to the 2024 base year. My hypothesis is that the differences for the premium segment arise from some other reasons as well. These include greater ability to absorb price increases, leading to slower substitution or switching; as well as limited price-shaping actions by the government (central and state interventions and subsidies are, rightly, concentrated at bottom-up levels).
illusion of motion
What does it mean for us, that the rate we think we are coping with is not the correct figure at all?
Well, inflation could multiply the mirage.
Ignore this, and as the salary increases the person feels richer. But salaries in the private sector are often linked to official inflation rates, so we are losing value there too due to a kind of erosion.
The result is a kind of treadmill economy: speed without progress, effort without profit.
Over time, this leads to a decline in lifestyle or standard of living, even within a statistically significant 1% for many people.
You’ve probably noticed this: holding off before shopping, self-inflicted downgrades (waiting for a cheaper flight rate, choosing a hotel with fewer stars for a family vacation, reliving car logs to find out where the fuel is going). For the top 1%, these remain champagne problems. Step into the vast majority who live below this line and decision making becomes increasingly murky.
flight path
Like all analyses, mine is incomplete because it only focuses on spending and consumption. The whole picture includes assets, savings and money, which move in different ways and can balance or amplify the effects of inflation. Still, everyday expenses are a good mirror of how one’s money can be expected to hold up over time.
Do the math to find out how you perform. Look at how many years it takes for after-tax income to buy a house or a car or pay for a child’s education, and one can get an idea of ​​how one’s income measures up against actual inflation in one’s world. When this multiplier increases, it means that wages have not kept up with the cost of living.
Economists call these real affordability ratios: home price-to-income, tuition-to-income, rent-to-salary. They show whether prosperity is real or whether it is also a partial illusion (largely due to the simple factor of unequal distribution).
The trick is not for the individual to spend less to beat inflation; The way forward is to figure out how to keep those individual ratios from going out of the green.
It’s worth repeating: this is where we stand, those of us lucky enough to be near the top of the pyramid.
(Kashyap Kompela is a tech industry analyst and author of two books on AI)
