Math explainer
Your Personal Inflation Formula: Weighted Average Explained
Here is the personal inflation formula in plain English. You will see how category weights are set. You will see how the weighted average inflation is calculated. You will see how the projection works so you can check every step without jargon.
Published: December 30, 2025 · Updated: December 30, 2025 · By FinToolSuite Editorial
Open the personal inflation basket calculator
Enter your categories, see the weighted average inflation, and download a projection you can keep.
Disclaimer
- Educational purposes only, not financial advice.
- Examples are illustrative and simplified.
- Results depend on your inputs and assumptions and are not guaranteed.
- This tool uses your entered inflation rates and does not fetch CPI or predict the future.
- See the Privacy Policy for handling details.
Quick answer
- Weight each category by how much you spend in real life.
- Multiply each weight by its inflation percent to get its contribution.
- Add the contributions to get your personal inflation rate.
- Project future cost by compounding that rate over the years you choose.
Definitions used in formulas
| Symbol | Meaning |
|---|---|
| i | Category index |
| Si | Monthly spend for category i |
| S | Total monthly spend across all categories |
| wi | Weight for category i |
| ri | Inflation rate for category i (percent input) |
| R | Personal inflation rate (weighted average) |
| N | Years of projection |
Formula 1: Category weight
Each category weight is its share of your total monthly spend.
Weights add up to 1. If you need a refresher, see category weights explained.
Formula 2: Personal inflation formula and weighted average
Multiply each weight by its inflation rate in decimal form and add the contributions.
Enter ri as a percent in the tool, like 3 for 3%. The math converts it to decimal for calculations. Weights sum to 1.
Formula 3: Projection over N years
Project annual cost by compounding the weighted average inflation rate.
This is the same compounding structure used in the compound interest formula, but using your weighted average inflation rate R.
Worked example
Illustrative only. Three categories with round numbers so you can see the math without a calculator.
| Category | Monthly spend | Inflation percent | Weight | Contribution points |
|---|---|---|---|---|
| Rent | $1,200 | 4% | 60% | 2.4 |
| Groceries | $400 | 3% | 20% | 0.6 |
| Transport | $400 | 2% | 20% | 0.4 |
Total monthly spend S = $2,000. Personal inflation rate R = 2.4 + 0.6 + 0.4 = 3.4% (weighted average). AnnualCost0 = $2,000 × 12 = $24,000.
Year 1 annual cost (illustrative): $24,000 × (1 + 0.034)^1 ≈ $24,816. Year 10 annual cost (illustrative): $24,000 × (1 + 0.034)^10 ≈ $33,400. Rounded so it is easy to scan.
Notes on steady assumptions
- Rates are treated as steady each year for projection.
- Basket shares stay the same unless you change categories.
- Taxes, discounts, fees, and lifestyle shifts are not modeled.
- Outputs are estimates, not guarantees.
Try it in the tool
Add 3 to 6 categories, enter low, base, and high assumptions, save two scenarios, and compare. You will see how small tweaks change your plan.
Open the personal inflation basket calculatorFAQ preview
What is a weighted average?
An average where each category is multiplied by its weight before summing.
Do weights have to add to 100 percent?
Yes. They represent your full basket, so they add to 1 (or 100%).
Should inflation percent be 5 or 0.05?
Enter 5 for 5%. The math uses 0.05 when multiplying with weights.
Why does a big category change the result so much?
Big categories have bigger weights, so their inflation drives more of the total.
Does the tool use CPI?
No. It uses only the inflation rates you enter.
How does the projection work?
It compounds your weighted average inflation over the number of years you choose.
Can I compare scenarios?
Yes. Save one scenario, adjust a key input, rerun, and compare outputs side by side.
Is this financial advice?
No. It is educational and depends on your inputs; results are illustrative.