We have explained how the Consumer Price Index is calculated each month and how you can calculate your own inflation rate using the same eight spending categories the Bureau of Labor Statistics uses. You can even select a location to target your inflation rate to your specific area.

However, you may want to explore further into the world of inflation and track inflation rates specific to groups of items. These specific items may represent a theme of some sort. We recently created and added a Valentine’s Day index to see what the inflation rate is for specific items related to Valentine’s Day. You can equally weight the items in your index or create your own weightings. We attempted to create dollar weightings representing the percentage value of what might be spent on the items in the Valentine’s Day Index. These items included:

Sugar and sweets
Full service meals and snacks
Wine away from home
Indoor plants and flowers
Women’s underwear, nightwear, sportswear, and accessories
Jewelry
Admission to movies, theaters, and concerts
Delivery services
Stationery, stationery supplies, gift wrap

And what were the results? Not surprisingly, over the last 12 months, the month that showed the most inflation was February! We’ll see next month if the same holds true in 2010. Over a 10 year period, inflation for the Valentine’s Day Index has been consistent, though it did show a higher rate of increase each year between 2006 and 2008 as inflation was beginning to heat up before the recession.

After you create your own inflation index or use one of ours, and enter your expense weightings of the items in your index, you can submit it to the Inflation calculator. We’ll show you inflation rates for each of the last 12 months and then display a table with inflation rates over the past 12 years. We also graphically depict the inflation rates for the past 10 years. Don’t forget to click the checkbox to save your index weightings profile if you want to re-use it or alter it later.

Creating and using an inflation index on MyInflationRate.com requires that you register on the site. Registration is free and only requires a valid email address. Once registered, you can use a sample inflation index we have created or make your own inflation index by selecting items within the eight major spending categories of the Consumer Price Index.

If you come up with a great new inflation index, let us know! We’ll give you credit on our Blog and may even make the inflation index available to all our users.

The question of how inflation should be measured has been argued endlessly over time. Many feel the Consumer Price Index is not cutting it and does not accurately reflect the inflation they feel every time they spend money. Well, those people may be right if they are trying to determine their personal inflation rate.

The Consumer Price Index measures the cost of a representative “basket” of goods and services in the U.S. economy using prices gathered from all over the country and then averaged. That basket is not meant to represent the purchasing of any one individual in a single location, but is meant to reflect the collective spending of the entire population. Some individuals may be experiencing inflation that far exceeds or falls far below the inflation rate reported by the Consumer Price Index.

The inflation rate of any one individual is entirely dependent on what the person in question is purchasing and also, where they are purchasing these items. Inflation rates do differ by location as well. For example, gas prices do not go up and down the same across the entire nation. Just look at the last several months data on the gasoline item page.

Notice that in January 2010, the national average price increase was 4.22%, however when you look at prices on a regional level (by clicking on the name of the region in the Evaluation Level section) you will find differences in the inflation rates. The West region experienced an inflation rate of only 3.1% in January 2010, while the unlucky folks in the Midwest experienced a rate nearly double that at 5.94%. So depending on where you live and how much you spend on gasoline compared to your overall purchases, the inflation rate of gasoline could have a larger or smaller effect on your overall personal inflation rate.

The Consumer Price Index is made up of eight spending categories. With the Bureau of Labor Statistics’ January 2010 updates these spending categories now account for the following percentage values of the overall Consumer Price Index:

• Food and Beverage (14.795%)
• Housing (41.96%)
• Apparel (3.695%)
• Transportation (16.685%)
• Medical Care (6.513%)
• Recreation (6.437%)
• Education and Communication (6.434%)
• Other Goods and Services (3.483%)

Your percentage allocation to each of these categories may differ. If so, you are experiencing an inflation rate different than the Consumer Price Index. By visiting our Inflation Calculator and using the MyInflationRate.com Standard Index, you can enter your spending across the eight major spending categories of the Consumer Price Index and then select your location to calculate your personal inflation rate. You may be surprised at the results!