...at least not the way it is commonly referred to.
What I am saying here is that inflation is not at all accurately described by one number. It can, however, be described by many numbers.
Inflation is defined in Wikipedia as "the percentage rate of change of a price index". The choice of price index is very important. "Core inflation" excludes volatile food and energy prices, and many people use it because it has fewer erratic swings of little consequence. In response to a question about core inflation, Warren Buffet once said "food and energy seem pretty core to me".
Any person who has to buy things nowadays inherently knows it: things we
need are getting more expensive. That is where my first point lies. Inflation in a price index, thought of as a single number, completely misses what products or services in that price index are changing in price, and what their price elasticity is. Imagine a price index composed of 50% of things people need and 50% of things people want. If the price index increases 10%, but owing to a 20% increase in the price of the necessities and no change in the wants, that is very different from a 10% increase across the board. Food and energy inflation is necessarily harder to deal with than, say, luxury sofa inflation, even if each takes up a similar amount of a person's overall income.
My second point is that the effects of inflation are different on different people. For example, seniors generally allocate a large amount of their spending on their health whereas young and healthy people allocate far less. Things one can do to deal with inflation are different for different people as well. A young and healthy person could deal with unexpectedly high inflation by working more. A senior by comparison may not have this option. Everyone has their own sort of personal inflation situation.
In later post I'll try to extend this idea to businesses and investment results.
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