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#1: Calculating Inflation

Posted on 2006-03-02 01:00:30 by Danl

First of all, I have been reading this group for a while now and I
appreciate the participation of the posters. There is always more than 1 way
to look at things and you folks seem to cover a lot of POVs.

Proper financial planning (almost) always requires one to calculate the
effect of inflation in the years to come. However, I believe that *my*
inflation is not necessarily equal to my neighbor's inflation or certainly
not the inflation of my cousin in Minot, North Dakota. We have different
lifestyles and different assets. I belive that the generally quoted CPI is
calculated using a fixed basket of goods and services. That basket may not
(and probably doesn't) match very closely with my consumption of goods and
services. Have any of you attempted to calculate *your* inflation given a
personalized basket of goods and services? If so, please share your
thoughts.

Danl

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#2: Re: Calculating Inflation

Posted on 2006-03-03 00:19:29 by Mechanics of Money Financial BBS

The prior posts are well put. I would add that you (and all of us) are
in fact tied to the overall economy more than you think. Your
investments are held at investment companies, and you are dependent
upon companies to supply goods and services to you (both foreign and
domestic) -- unless you live in an isloated community in the mountains
that has no contact with the outside world (I say that not in jest, I
actually do live near such a community). So while your personal CPI
might be plus or minus one or more percentage points, that really
doesn't change the fact that you and your spending will be for
goods/services that are impacted by inflation -- the exact figure which
will be somewhat close to the aggregate number. Thus, planning using
the aggregate is much better than using nothing. Furthermore,
calculating your personal CPI would prove ineffective as your own
spending habbits would change over time as well (I didn't buy the same
things that I did last year, in the prior year and they cost different
amounts each year). It is an interesting idea though.


Gary Brolis
<a href="http://www.MechanicsofMoney.com" target="_blank">http://www.MechanicsofMoney.com</a>
<a href="http://www.MechanicsofMoney.com/blog.php" target="_blank">http://www.MechanicsofMoney.com/blog.php</a>

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#3: Re: Calculating Inflation

Posted on 2006-03-03 11:04:41 by timbo

Danl wrote:

&gt; Have any of you attempted to calculate *your* inflation given a
&gt;personalized basket of goods and services? If so, please share your
&gt;thoughts.
&gt;
Your dollar erosion is proportional to localized inflation -- not
aggregate form. If your income doesn't compensate, you'll lose in the
long run -- hence, forced to strolling up/down the hallways with your
new friend Butch at the nearest low-cost [nursing home] provider.

The ultimate goal is to have enough at retirement to live like you
wanted to at age twenty. Hopefully, globalization [sic] will make
inflation moot.

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#4: Re: Calculating Inflation

Posted on 2006-03-12 20:41:30 by Charlie

The ideas and approaches to viewing the effects of inflation that I read
here are fascinating. My take has been to view the past and future base
level of the economy as a guide to what my needs in money will be or
were. The calculation I use works quite well. The mathematicians I
have known prefer other formulas, but the end result is very similar.
From the end of WW-2 to the early 1990's, and probably now even though
it is lost in the immediate swirl of current events, a dollar's buying
power has fallen by half every fourteen years. To do this arithmetic
requires either some real math ability or a cheap scientific calculator.

Start with &quot;Old dollar times two&quot;. Use the &quot;Y to the Nth&quot; key to
enter an exponent for the 'two'. The exponent is the number of years in
question divided by fourteen. Then hit &quot;equals&quot; to get the &quot;new
dollars.&quot; The calculator swallows decimals just fine. If the exponent
value is positive the calculation goes forward. Make it negative to
look back. With known prices or dollar levels current and past looking
back can be used to validate or qualify results.

My calculations and real life experience are that the results are not
for the faint of heart. Sorry, I cannot be reached directly.

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#5: Re: Calculating Inflation

Posted on 2006-03-12 22:27:09 by dapperdobbs

Charlie - Thanks for the ballpark numbers. That's useful. Depressing,
but useful.

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#6: Re: Calculating Inflation

Posted on 2006-03-12 22:29:27 by dapperdobbs

Charlie - Thanks for the data. It's depressing, but useful.

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