I’ve always know there was something wrong with those inflation numbers from the government. Now after doing a little math I’ve come to understand why they don’t work for me. Mostly it has to do with the weights of each class of spending. The government when calculating the Consumer Price Index (CPI) assumes I spend my money one way and in fact I spend it completely differently in a few areas. See the chart below for details of how the government assume I spend in each class and what I spend (click for a bigger version).
So it is obvious to me looking that that chart that changes in fuel costs only effect me personally about half of what the government expects. Also housing is a much bigger priority for me to watch my costs on. What is particularly interesting to about this chart is when I think about paying off my mortgage. I’ll reduce my monthly spending in total by about 1/3 (not just the housing amount, but the total amount).
Therefore when I retire and don’t have a mortgage payment the rise of the CPI will increase my CPP and OAS payments beyond what I need. So in the end I will be making out like a bandit. Since it is likely my costs will be rising no where near what the CPI indicates they should be. Who knew inflation could end up being a good thing?