Personal finance: Inflation doesn't treat all consumers alike
Is inflation a problem or not?
The government reported last week that the Consumer Price Index rose 0.6 percent in May, the biggest monthly jump since January 2001. If inflation kept up that pace for the next 12 months, things would cost about 7.4 percent more by this time next year.
By just about any definition, that would be galloping inflation. After all, when's the last time you got a 7.4 percent raise?
And yet, the stock and bond markets took the inflation report as good news. They focused on the "core" inflation number, which excludes changes in food and energy prices. Food and energy are said to be so volatile - they swing up and down so wildly - that they confuse the picture.
The core rate was up just 0.2 percent. No doubt about it, that's a modest rate. If it stayed steady, prices would be up just 2.4 percent over the next year.
So which number should you and I use - the bad one or the good one?
The fact is, neither reflects the day-to-day expenses we bear. The government survey covers thousands of items, and any individual consumer buys just some of them.
Your individual inflation rate would be worse than the overall number if you use a lot of gasoline, which jumped 8.1 percent in May.
But if you walk everywhere and instead put a big part of your budget into recreation, which got cheaper in May, your personal inflation rate might be quite manageable. (That woman on "Sex in the City" should be happy - footwear prices showed the biggest drop, 0.3 percent.)
Credit card rewards
Got a credit card that offers frequent-flier miles, cash back or some other perk? Don't forget to get the benefit you've paid for.
A survey by Maritz Loyalty Marketing, which serves card providers, found that nearly half the people enrolled in credit-card reward programs for five years or more had never redeemed their points.
If you're one of these folks, cash in - and then take a hard look at whether the card is worth the annual fee. You might be better off with a no-benefits card that's fee-free.
Piling on payments
Lots of Web sites and financial software programs have calculators for figuring the benefits of making extra principal payments. But there's a common shortcoming: They assume you start the extra payments when you first get the mortgage and continue at that level until the mortgage is paid off.
HSH Associates, the Pompton Plains, N.J., mortgage information firm, has a terrific free calculator for download at its site, www.hsh.com/hbcalc.html.
It allows you to account for any pattern of extra payments. Try some different approaches. You'll see, for example, that it pays to start early. Putting an extra $1,000 toward principal in Year One will save 29 years of interest.
By waiting until Year 20, you save only 10 years' interest.
Jeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at firstname.lastname@example.org.
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