Core Inflation On Our Families

NPR’s Marketplace radio show pushed out a report on the validity of the core inflation rate on Friday. For families with one income such as ours, inflation can be quite damaging. As a matter of fact, it can run people like us into the ground, financially speaking. So, keeping an eye on the market is important, but as the article shows that picking the right index is important.

In a nutshell, the core rate of inflation watches everything that can hit a person except food and energy. So the massive spikes in the electric bill in Maryland isn’t going to show up here; the cost of beef going up wouldn’t be caught either even though crops are being diverted to biofuels. It’s no wonder many people find the core inflation rate to be erronious.

In my past financial training, I learned that as a general rule a family should watch the CPI-U. What’s that? It’s the Consumer Price Index - Urban. It’s generally considered to be the best figure that matches family financial expenditures. But its not perfect either. It doesn’t cover issues with localities. It’s a national average. It can completely flop for someone based just in real estate figures alone, since prices can shift drastically from one area of the United States to the next.

Even though the system isn’t perfect, it is a useful tool to see if the interest rate on a CD or savings account is worthwhile. Remember if the inflation rate is greater than the return on your savings, you are loosing money. Now you know why most savings accounts and CD’s are garbage.