The Consumer Price Index (CPI) is supposed to reflect the spending patterns of the average urban South African across various categories of goods and services.

Each of these categories (food, fuel, education, rent, insurance etc.) has a fixed weight in the index. The weights are usually updated every five years, and at the same time, some items are excluded and new items are included based on how consumption patterns have changed.

For example, DVD rentals fall out, and a Netflix subscription comes in.

The method by which Statistics South Africa collects inflation data is in line with global standards and it offers a good indication of the direction of prices. However, like all averages, it never really applies on an individual level.

Why your personal inflation rate does not match the CPI

Old Mutual Wealth Investment Strategist Izak Odendaal explains that there are several reasons why your personal inflation rate probably does not match the CPI.

You are not the average: StatsSA does produce CPI indices per province and also by expenditure deciles. This means the population is divided into 10 equal groups depending on how much they spend. These regional and expenditure-based indices might be closer to your own experience, but are still unlikely match your exact spending habits. You are unique!

Your spending habits change as prices move around: When beef becomes expensive, you might eat more chicken. When the petrol price goes up, you might drive less. When retailers run specials, you stock up. If your insurance premiums go up, you shop around (or at least, you should!) for a better deal. Or you decide to finally quit smoking. However, the weightings in the CPI are fixed.

You confuse “expensive” with “inflation.” Inflation measures the change in the CPI compared to a year ago. Therefore, it is influenced by prices today and 12 months earlier. If prices were high 12 months ago, inflation will probably be low today even if prices are still high. Put differently, if the current record high petrol price remains at R24/l for 12 months, the petrol inflation rate will fall to zero, but petrol will still be very expensive.

Low inflation still means prices are going up. Similarly, you’ll sometimes hear an economist talk about low inflation and wonder what they are smoking. Low inflation means prices are rising at a slow rate, not that they are low or falling.

You don’t calculate your inflation rate correctly. Most people only notice prices when they move up a lot. Food and fuel prices are usually the most volatile, and since we buy food and fuel regularly, we notice them a lot. They are not necessarily the biggest item in your monthly expenses though. Your mortgage payment or rent, insurance, car loan, and school fees are all big items that change infrequently ‒ sometimes only once a year. For example, rental inflation is currently only 2% and it makes up the single biggest item in the CPI basket. You probably also don’t notice the fact that your monthly cellphone contract gets you more data and a better phone every time you upgrade. But StatsSA notices and calculates the quality improvement in the goods you buy as a lower effective price.

In summary, StatsSA and its counterparts in other countries do a good job of calculating inflation and their work is credible. But these indexes are not meant to reflect the experience of any particular individual.

This article first appeared in City Press.