Inflation has been the economic story of the decade. After spiking in 2022, official U.S. consumer price inflation slowed to around 2.7 percent in November 2025. Yet many households in Europe and North America still feel squeezed.
That apparent contradiction arises because a single headline number cannot capture the complex ways prices affect individual budgets. A family’s “personal economy” depends on what it buys, how much it earns and how much it has saved. Understanding the gap between official statistics and daily reality is essential for making sound financial decisions.
The limits of headline inflation
Government agencies use indexes like the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) to measure broad changes in prices. These averages are weighted baskets of goods and services. However, they may understate how quickly some costs are rising. The Statement from BOK Financial warns that even when inflation slows, prices remain elevated: U.S. consumer prices were roughly 24 percent higher in 2025 than before the pandemic, and inflation compounds over time. In some categories the divergence is stark. Consumer Expenditure Survey (CEX) data show that spending on new vehicles rose 32 percent since 2020, while CPI for new cars increased only 1 percent.
Incomplete data can also distort headline figures. In November 2025, a U.S. federal government shutdown delayed important data collection, leading economists to suspect that CPI understated price increases. Tariffs and surging electricity demand from AI data centers may soon add further upward pressure. Meanwhile, basic necessities continue to rise: beef, dairy products and electricity remained expensive in late 2025. Headlines that focus on the rate of change (inflation) can mask the fact that the absolute level of prices is still climbing.
How personal inflation differs
Personal inflation is the change in your own cost of living. It reflects how much you spend on housing, food, transport, education, healthcare and leisure. McKinsey’s latest consumer sentiment survey shows that 75 percent of Americans traded down to lower‑priced products in 2025. Many households tapped their savings and cut discretionary spending. Young adults in Generation Z remained relatively optimistic, but older and lower‑income consumers expressed deep anxiety about job security and the cost of living. These personal pressures often diverge from national averages.
To calculate your personal inflation rate, compare your current spending in each category to what you spent a year ago. You may find that childcare costs rose 8 percent, while your grocery bill jumped 10 percent due to shrinkflation (packages getting smaller) and higher electricity prices. Conversely, your rent may be fixed or even falling if you refinanced a mortgage at a lower rate. This exercise reveals which expenses are eroding your budget and where you can cut back. Remember that some “price declines” are relative: if inflation falls from 4 percent to 2 percent, prices are still rising – just more slowly.
Strategies to manage your personal economy
- Track spending. Use a budgeting app or spreadsheet to categorise expenses. Identify categories where prices have surged.
- Build an emergency fund. Savings equivalent to three to six months of expenses provide a buffer when costs spike or income falls.
- Shop smart. Take advantage of discounts and consider generic brands. McKinsey reports that consumers are shifting to value retailers and cooking at home more often.
- Review debt. Rising prices can make variable‑rate loans more expensive. Consider refinancing to a fixed rate or paying down high‑interest debt.
- Invest strategically. Inflation erodes purchasing power, so keep cash in high‑yield savings accounts and consider inflation‑protected securities. Diversify across asset classes.
- Protect your data. In times of economic stress, fraud increases. Monitor your credit reports and enable multi‑factor authentication on financial accounts.
Finally, stay informed. Monitor local inflation data and follow reputable economic news. Understand that official inflation numbers are tools, not truths. They provide a useful benchmark, but your financial planning should be tailored to your unique circumstances. By focusing on your personal economy and adjusting accordingly, you can navigate turbulent times with more confidence.
