What is the current rate of inflation? asks Tony Watts OBE. Read the headlines and you’d assume it was 0.3% in January 2015. But it’s more complicated than that. Much, much more complicated.

That 0.3% stat refers to the Consumer Price Index (CPI). Many of us still think of RPI (Retail Price Index) as the way to measure inflation. That, in fact, rose by 1.1% in January. But (arguably confusingly), RPI is no longer a “National Statistic”… don’t take my word for it, though, that’s the official line of the Office for National Statistics – presumably the people who should know.

CPI, in fact, doesn’t take account of housing costs. Which is weird, when you consider how important that factor is. RPI DOES include housing costs such as mortgage interest payments and council tax, so you’d think it would be the more relevant measure of how much our living costs are going up (or down). But there we are.

Of course, you could always refer to “CPIH” – which builds in some fancy algorithms to account for what people living in their own homes would pay if they lived in rented accommodation.

Then there’s RPIJ (which uses a geometric formulation called ‘Jevons’) which the ONS apply to get a more weighted perspective on our spending habits…

With me so far? If so, your medal is in the post.

So does all this matter?

Well when pension rises (as many are) are based on CPI rather than RPI it can matter quite a lot – and there have been occasions in recent years when there have been massive divergences between the two measures. And it certainly matters when you are trying to calculate how much YOUR spending might go up in the year / years ahead.

But the situation is even more complicated than that.

Whenever inflation rates go down, the politicians argue about whether people are actually feeling the benefit. And, as it happens, both are right. Some of us WILL feel the benefit of prices going down, while others will not. The critical criterion is the “basket of goods and services” we spend our money on.

Each of us, effectively, will have our own “personal rate of inflation”.

And the impact of inflation on pensioners has long been recognised as being quite different from those of other parts of the population. For those without mortgages but reliant on savings, low inflation is not necessarily a benefit – and that is exacerbated if pension rises are kept low as well.

Those on a lower income will also spend a higher proportion of their money on food and fuel rather than (for instance) electronic goods, while all utility bills will also have a disproportionate impact. The hikes in heating costs in recent years (still not being fully redressed despite falling global prices) hit those on lower incomes far harder.

Where we live also plays a large part in our day-to-day costs. Some very interesting stats have just been released by Key Retirement which also demonstrate how much the “annual cost of being a pensioner” varies.

While (overall), the average cost of being a pensioner is £11,200 a year, retired people in the North East need £9,630 a year to get by compared to £13,216 in the South East – nearly £3,600 a year less or 37% lower.

Key’s analysis shows the average retired household spends around 15% of their budget on fuel and housing – equivalent to around £1,680 a year – narrowly ahead of the 14% they spend on food and non-alcoholic drinks – which equates to around £1,568 – with transport taking an 11% bite out of budgets.

Average food bills have increased by just £5 on last year while spending on fuel and housing has increased by nearly £200.

Another interesting stat they provide is that over-65s have £827 billion invested in their homes – an asset many will come to need at some point in the future to fund their retirement or care.

As Dean Mirfin, group director at Key Retirement (www.keyretirement.co.uk), says:  “The recent good news on price rises slowing down as inflation falls, as well as cuts to major expenses such as gas and electricity bills and the fall in petrol and diesel costs, should mean a drop in the cost of being a pensioner this year.

“But it is crucial that pensioners and those in the run-up to retirement focus on their retirement income as the current basic State Pension, and even the new State Pension planned for next year, will not cover the basic costs of being retired in any region of the UK.

“Anyone approaching retirement will need to find other income in order to meet the basic costs and should look at all their assets including savings or pensions, plus the money invested in their home.”