Inflation is an increase in the general price level of goods and services. To compare what money can buy, divide the nominal balance by the price level. An official index and a personal basket have different coverage and weights; higher personal spending alone does not show that the official index is wrong.

Personal inflation can be above or below an index

The U.S. BLS CPI explanation notes that a national average rarely matches an individual experience. The ECB's inflation explanation likewise distinguishes euro-area HICP from personal spending patterns. These are U.S. and euro-area methodological explanations, not evidence for current Korean or Japanese inflation rates. Frequently purchased items and large spending shares can affect experience, but personal inflation is not always higher and no fixed psychological effect is assumed.

Separate prices from quantities first

Illustratively, a same-quality, fixed-quantity basket has food and other items with prior spending weights of 40% and 60%. If prices rise 10% and 2%, fixed-basket cost rises 0.4×10%+0.6×2% =5.2%. Another household with a 20% food weight has 3.6% under the same price changes. This illustrates composition, not a replication of official CPI.

If you bought 10 food units at 10 each last year and 12 at 11 this year, spending rises 100→132, or 32%, while the unit price rises 10%. Quantity also rose 20%; calling all 32% inflation is incorrect. Match item, package size, quantity and unit price on receipts and mark changed brands or quality separately.

Convert nominal growth into purchasing power exactly

Fictional assumptions:10,000 starting units, nominal annual return 3%, inflation 5%, no taxes, fees or cash flows. After one year the balance is 10,300, but its value at initial prices is 10,300/1.05 =9,809.52. Real change is(1.03/1.05−1)×100 ≈−1.9048%. Subtracting 3%−5% =−2% is only an approximation.

If the same assumptions hold for10 years, the nominal balance is 10,000×1.03^10 =13,439.16 and initial-price value is 10,000×(1.03/1.05)^10 ≈8,250.48. This predicts neither future returns nor inflation. Use a known after-tax, after-fee return in the numerator where applicable without transferring one country's tax rate across products or countries.

Use the result to check spending needs

Record the cost of maintaining quantities separately from actual outlay. Compare nominal income growth with purchasing power at matched prices. If the basket itself changes, distinguish fixed-composition price comparisons from changes in living standards. Unit prices help identify reduced package content, but match quality and discounts too. This calculation alone establishes neither suitable equity, property or inflation-linked bond allocations nor loss-free protection; no particular portfolio allocation is prescribed here.