Inflation, Up Close and Personal

It often seems like the inflation figures touted by officials and economists have little connection with the real world. There are a number of reasons for this, some technical and some political. But there is a deeper problem than the means and motives for calculating any specific index. The issue is that any aggregate number is likely to deviate significantly from one’s personal experience. Each of us saves for different reasons and spends in different ways. Without taking these specific choices into account, we cannot accurately represent or protect against the inflation that we individually encounter. This paper elaborates on this idea and explains how each of us can identify the relevant components of inflation, and best hedge our savings.

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