Extending Chapter 4: Consumer Purchasing Strategies and Legal Protection

What You’ll Do and Learn

• You’ll learn how inflation can affect the amount you may need to budget for future purchases.
• You’ll calculate your personal rate of inflation.

Introduction

In this activity you will extend your understanding of how inflation can affect your buying power and budget.

Chapter Notes

In Chapter 4 you learned that being a smart shopper can help you get the most for your money. If you are planning to purchase an expensive item, such as a new computer or a car, you may have to budget and save for several years to accumulate the funds you need. When planning for longer-term goals such as these, it's important to keep an eye on inflation. In creating your budget, you can factor in a potential increase in the cost of your future purchase due to inflation.

One measure of inflation is the consumer price index, or CPI. This index represents the change in price of certain goods and services over a period of time. The index includes items that most consumers purchase regularly, such as food, clothing, and electricity. The CPI measures inflation on a national level. However, at any given time, many areas of the country experience higher or lower rates of inflation than is reflected by the CPI. In addition, individuals may have different consumption patterns - spending a larger percentage of their incomes on clothing, for example - than is assumed by the CPI.

If you're planning to make a large purchase in a few years, it's a good idea to look at how prices have recently changed in your area for the particular type of item you are planning to buy. You can then estimate an inflation rate that is more appropriate for your needs than the CPI rate.

Site Notes

Standard & Poor's offers a calculator that can help you estimate how inflation could affect your budget. The Personal Inflation calculator estimates your personal inflation rate based on how you spend your money. You'll need to provide information, based on your previous budget experience, about the dollar amount you spend for each category.

Let Me Try

Go to the S&P site at and then print the Worksheet activity.

Adobe® Acrobat® Reader® is required to view or print some of these files. If you don't have Adobe Acrobat Reader, download it free!