When Inflation is Low, but Life is Expensive

As an investment professional, my passion has always extended beyond portfolio returns and market performance.

At the core of my work lies a deep commitment to financial literacy.

I strongly believe that financial education is one of the most powerful tools a person can possess. It gives clarity in uncertain times and control in moments of economic pressure.

One of the most misunderstood concepts in personal finance, and one that affects every household, is inflation.

More specifically, the difference between official inflation and personal inflation. Imagine, when statistics are released showing that inflation is ‘only’ 2.90% as currently printed, many people react with disbelief.

They say living costs are much higher than that.

And in many cases, they are correct, because inflation is not experienced equally.

Official inflation is measured using the Consumer Price Index (CPI). It tracks the average change in prices of a broad basket of goods and services across the country.

It is designed to reflect general price movements in the economy. The central bank and policymakers rely on this number to make decisions about interest rates and economic policy.

Personal inflation, however, is different. It reflects the rate at which the cost of your own lifestyle increases. It is shaped by how you allocate your income.

For example, if you spend a large portion of your income on transport or rent, and those categories increase sharply, your personal inflation may be far higher than the official rate.

This explains why you will find people complaining about higher living costs despite official inflation being low. Their personal inflation is significantly above the national average.

On the other hand, some people say living costs are manageable even when official inflation is rising. That is because their personal inflation is lower.

These are often individuals who live within their means, manage expenses carefully, and avoid lifestyle inflation. In many cases, their income growth is equal to or higher than their personal inflation rate.

As a result, they do not feel the same financial pressure. Inflation can be officially high while your personal inflation is low.

For instance, if food prices rise sharply but your spending is concentrated in areas with stable pricing, your household may not feel the full effect. Equally, official inflation may be moderate, yet your personal inflation could be high if your rent increases significantly. Inflation is not uniform, it is deeply personal.

Understanding personal inflation is critical because it directly impacts savings, investments, and budgeting. If your personal inflation is 8% and your salary grows at 5%, you are effectively becoming poorer in real terms.

If your investments return 6% while your personal inflation is 9%, your purchasing power is declining. This is why financial planning must be personalised. This means, it is not enough to just beat official inflation, you must aim to outpace your own household inflation too.

While official inflation is an important economic benchmark, it is not a perfect measure of every household’s experience. Each family must understand its own spending patterns and calculate its own inflation rate.

This awareness enables smarter budgeting, better investment decisions, and more realistic financial goals. Personal inflation becomes dangerous when it consistently exceeds income growth and official inflation. It erodes savings, increases reliance on debt, and creates long-term financial vulnerability.

However, personal inflation that is lower than official inflation can be advantageous, it means you are managing your finances prudently and protecting your purchasing power.

In the end, inflation is not just a national statistic, it is a household reality. The key to financial resilience lies in understanding your numbers, not just the country’s numbers.

That is where true financial literacy begins.

And in the journey toward financial freedom, understanding your personal inflation may be one of the most powerful tools you possess.

– Trophy Shapange is the managing director of Lebela Fund Managers. The views expressed here are his own.

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