We all need to calculate our own inflation rates based on consumption

It was four in the afternoon, I was taking my late-afternoon nap, when she barged into my room with a view.

"I thought I need to have a coffee with V," she said.

"For sure," I replied.The coffee was made, and few sips later, I was awake and back into the real world.

"So, did you see the inflation figure?" she asked."No."

"Well, the consumer price inflation in January 2019 hit a 19-month low of 2.05%," she said."The consumer price inflation figure is the average rate of inflation or rate of price rise, that prevails in the country."

"What does that mean?""The inflation rate varies across different states."

"Hmmm.""In urban Maharashtra, which is where we live, the prevailing rate of inflation is 3.39%."

"Oh, that is higher than 2.05%," she said."Yes, it is. If we were somewhere in Bengaluru in urban Karnataka, the rate of inflation would be even higher at 4.81%."

"So, different parts of the country have different rates of inflation.""Of course, doesn't that make sense?" I asked.

"Yes, it does.""Also, there are two major parts of how inflation is calculated, the food part and the non-food part."

"Okay.""The food inflation has been falling for the last four months and in January 2019, it was -2.17%."

"What does that mean?""It basically means that food prices on the whole have been falling. Take the case of fruits; prices in January 2019, were down 4.18% in comparison to January 2018. Along similar lines, vegetable prices were down 13.32% and pulses were down 5.5%."

"But isn't that a good thing?""Not for everyone. Definitely not for the farmers, producing these things."

"What else do I need to know on this?" she asked."The rate of inflation has been low because of a fall in food prices. If we look at non-food non-fuel inflation, or what economists like to call core inflation, that stood at 5.38% in January 2019. It has remained between 5-6% for a while now."

"Oh. That isn't low.""No, it isn't."

"So, what does this mean?" she asked."It means that prices of products and services other than food and fuel have been going up at a fast pace," I said.

"Hmmm.""Also, you need to understand that food forms 39.06% of the index that is used to calculate the rate of consumer price inflation."

"Oh. What does that mean?""It basically means that for every Rs 100 that an Indian spends, nearly Rs 39.06 is spent on food."

"Hmmm. But that isn't true in my case.""Yes. The more money one makes, the lesser portion of money gets spent on food, and more money is spent on other goods and services."

"So, this rate of inflation of 2.05% isn't true in my case?""It's not. Your consumption basket is different from that of an average Indian," I said.

"Consumption basket, V?""Things you spend your money on."

"Ah. That.""Like your parents stay with you and you take care of their medical bills."

"Yes.""And that forms a significant part of your monthly expenditure."

"Yes close to 15%.""Okay. In case of the consumer price index used to calculate inflation, the weight is only 5.89%. So, clearly you spend a greater amount of money on health-related expenses, than an average Indian does."

"Hmmm.""Interestingly, expenditure on health has become 8.93% more expensive between January 2018 and January 2019. Within that, hospital and nursing home charges have gone up 13.52% and medicines have become 9.5% more expensive."

"Oh.""Even education has become more expensive in the last one year, with prices having gone up around 8%."

"Really?""Yes. So, people who have young children and spend a good part of their income on education expenses of their kids are feeling the heat. Private tutor/coaching centre charges have gone up by around 12.25%."

"So, there is nothing like an inflation rate for everybody.""No. We all need to calculate our own rates."

"And how do we do that?" she asked."Oh, that's another story for another day. Get me one more cup of black coffee."

The example is hypothetical. 
(Vivek Kaul is the author of the Easy Money trilogy)