Like many people in his generation, my grandfather used to love complaining about the government. One of his more memorable pastimes was grumbling about the size of his Social Security check, which never seemed to have a high enough cost-of-living adjustment to keep pace with the inflation he was seeing. “I don’t know what stores they’re shopping at, pal,” he’d say. “Every year I fall behind.”

While his frustration is something that many of us feel every day as we watch our expenses grow, his complaints hinted at a deeper issue. According to the Bureau of Labor Statistics, which prepares the widely-used CPI and its various offshoots, the inflation rate impacts the income of about 80 million Americans, all of whom depend on some form of cost-of-living adjustment. So, if the stated inflation rate doesn’t keep pace with an individual’s actual cost increases, that’s a problem.

Despite the immense amount of effort that goes into measuring our inflation rate with precision, the reality is that there is no one true inflation rate. Even the measuring agencies can’t totally agree on how to calculate it, and they’ve introduced literally hundreds of different measures (while also implementing a series of methodology changes) over time. Simply put, the one-size-fits-all inflation statistic is a lie. We’re here to tell you why, and how to know where it may fall short for you.

So, what is the CPI?

I’m glad you asked. According to the BLS, the CPI “is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” That “market basket” includes several hundred items spread across eight major categories (food, housing, apparel, transportation, medical care, recreation, education/communication, and the amorphous “other”), with prices checked on a regular basis to track changes over time. The relative weightings of the items are based on Consumer Expenditure Surveys, which gather information on typical spending patterns across the categories. Bored yet? Good. Let’s move on.

Looking back at that CPI definition, you might have noticed a reference to “prices paid by urban consumers“; that’s your first hint that there might be some people to whom the summary inflation statistic doesn’t apply. Indeed, for those living in rural communities, the broad-based CPI (technically, CPI-U, for “Urban”) won’t necessarily be relevant. But even if you’re not a cattle farmer, you shouldn’t automatically assume that the off-the-rack inflation rate will fit you.

What can impact my personal inflation rate?

Every individual and family has unique spending habits, which of course means that no two families will experience exactly the same inflation rate. While the Consumer Expenditure Surveys do a good job of selecting a representative sample of Americans, at the end of the day the weighting of the “market basket” of goods is based on an average of that sample, and it doesn’t account for variation among the families, which can sometimes be significant.

With that in mind we’ve put together a (non-comprehensive) list of factors that can impact your personal inflation rate.

Regional Variation

We live in a large country, and each region has its own unique identity; these regional differences span the gamut from eating habits to exercise habits to choices in entertainment options and more. And beyond just cultural differences, variations in climate can dramatically impact certain expenditures (and their weightings) in an individual’s budget—think heating oil in Minnesota, snow shovels in Massachusetts, or air conditioners in Arizona—all of which could have wildly different price behaviors.

There are also certain distribution issues that play a role, since it’s folly to assume that all products sell for the same price nationwide—the price of an avocado could be much different in Illinois than in Texas, and the prices (and availability) of imported Chinese products will probably be a little bit different in Alabama than they are in San Francisco. And if their prices are different, then their price trends over time will likely be different as well.

For its sake, the BLS tries to account for these variations by generating a number of regional and city-specific CPI measures, but nobody really follows them and they certainly don’t guide national policy. Any variation in your region from national averages will certainly impact your budget.

Housing

This is a big one, and it could easily be the subject of its own blog post. Without getting too deep into the technical details (here, have at it, if you really want to), it’s important to know that while housing is the most heavily-weighted component in the CPI (more than 30%), it’s measured in a way that isn’t necessarily reflective of on-the-street realities.

Most of the measurement issues derive from discrepancies in costs between those who own and those who rent. Apartment rents don’t necessarily track housing prices on a one-for-one basis, and even if they did, not everyone in the country rents their primary residence (and of course, homeownership rates can vary significantly by region, which refers us back to our last point).

For most homeowners, the cost of their primary living space is essentially a fixed cost, deriving from their mortgage and the price of the home when they purchased it. So while changes in housing prices will have an impact on their overall net worth, it typically won’t have much of an effect on their ongoing living expenses (except maybe property taxes, which are minor and tend to lag the market). But for renters, these costs can and do tend to vary over time, and therefore changes in rents must be monitored. It’s also necessary to keep an eye on broader housing prices, since they will often impact people’s decisions whether to buy or to rent, or whether to buy an investment (rental) property, and what rate to charge if and when they do.

Because of all these variables, housing costs are an incredibly difficult factor to track over time, and something that the BLS continues to fine-tune in its calculations. But since these costs are such a significant portion of nearly everyone’s budget, it’s imperative to be knowledgeable about local trends and costs. If you live in a rent-controlled New York City apartment, your personal inflation rate might be significantly different from somebody living in the heart of Silicon Valley. As always in real estate, location is everything.

Income Level

One issue that has spurred no shortage of very passionate opinions is whether and how inflation impacts people in different socioeconomic positions. Many economists feel that inflation tends to impact the poor the hardest (one study in the UK found that inflation was 50% higher for the poor), but others question those conclusions. Among the factors that could be in play is the role of technology products, which are naturally deflating goods but tend to represent a much smaller expenditure for the poor than for the rich (see this anecdote for an amusing representation of how that plays into the national conversation).

What is incontrovertible, however, is that the inflation rate for the poor is significantly more volatile. Because certain costs, like food and energy, are effectively fixed costs—you consume the same basic amount of them whether you’re rich or poor—these items represent a much larger portion of the poor person’s budget than the rich person’s budget. According to the chart in this post, the poorest 20% of Americans spend nearly 60% of their after-tax income on food and energy, whereas the richest 20% spend barely 10%. And since we know that food and energy prices tend to be the most volatile of prices (so volatile that the Fed likes to strip them out of the inflation rate to measure so-called “core inflation“), it should be clear that the volatility flows through to their respective inflation rates.

Over the long term, volatility in inflation rates should, theoretically, even out. But for poorer people who are operating on narrow budgets, that volatility can have a real impact on their bottom line, and could conceivably force them to make some harsh moves in certain circumstances.

Age

Obviously, our spending habits change as we age. As we get older, we might travel less and spend less (or, for some people, more) on restaurant meals. We’ll also most likely buy less new clothing, and we’ll probably settle into a housing situation that at least has more predictability than when we were younger.

But the most important thing that we’ll end up spending more money on as we age is health care—by some measures, more than half of lifetime medical expenses are incurred during our senior years. And since medical costs have been outpacing inflation for decades now, that dynamic alone will lead effective inflation rates for the elderly to be higher than those for middle-aged people.

Of course, there are a number of other factors that come into play here that temper that inflation pressure, most notably insurance and Medicare reimbursements. But just because not all costs are paid out of pocket, that doesn’t mean they can simply be ignored. That’s particularly true in the case of long-term care, which is increasing in need as our population ages. For those on a fixed income (which almost all retirees are, in some form or fashion), any increase in inflation can cause a particularly uncomfortable situation.

Other Factors

A wide variety of other factors can play into determining an individual’s personal inflation rate. Some of these factors are demographic in nature (Do you have kids? Do you plan on paying for their college education? Have you looked at tuition rates lately?), while others can be better described as psychographic (Are you a vegan? Do you eat organic? Do you prefer to buy new cars, or used? Are you an obsessive coupon-clipper who seeks out sales on every product you buy?).

And very often, timing can play as big a role as anything else. Did you make a big anticipatory purchase of heating oil back in the fall, rather than waiting and buying it now? That decision may have backfired, much like a decision to have purchased a house back in 2007 (as I had the great pleasure of doing). For certain products that we buy infrequently, the overall trend in the price of that product might not matter nearly as much as the price right now. This is where overall planning can have a role, indicating where you can and can’t minimize your exposure to these kinds of pricing gyrations.

So, what should I do now?

Well, you could follow every single category that the BLS tracks and try to track your own actual realized inflation rate, and then project that out into the future, but that’s hardly realistic. For many purposes, using historical inflation rates or current inflation rates and applying that rate to all expenses equally may even be good enough for government work. After all, there’s no way we’ll ever really be able to project future inflation rates accurately (as Yogi Berra said, it’s tough to make predictions, especially about the future), but it does help to know if and how our personal circumstances might cause our experience to vary from historical figures.

Ultimately, the most important exercise here is to study our own budget (and our own expectations of future expenditures) and to know everything we can about our spending habits. That way we’ll be able to determine if we have higher-than-average exposure to categories that have been historically inflationary (health care, education), deflationary (technology, apparel), or simply volatile (food, energy), and adjust our financial plans accordingly. By knowing the big drivers of our budget, we’ll be able to more easily adapt and adjust when the prices on those big drivers change.

Regardless of what any summary government statistics might say, our personal inflation rate is ultimately calculated in only one way—by counting up our expenses in one year and comparing them to the last year. And just knowing that is half the battle.