The inflation rate remains at a high level, but the perceived inflation is still significantly higher. How can this be explained?
Recently, the concept of inflation has been particularly present among many people. No wonder the measured inflation rate in 2022 was a record 7.9 percent. Perceived inflation, on the other hand, is much higher, climbing to 34.2 percent in the same year, according to a survey. But what is the explanation for this large difference?
Therefore, the perceived inflation is higher than the measured
In contrast to the measured inflation rate, which is based on the prices for a general shopping basket, the perceived inflation is based on something else: the price change subjectively perceived by the consumer for the goods or services he prefers to buy. The distorted perception has several causes.
As an explanation for the perceived inflation, you will find below some of the most important reasons:
- People perceive negative events more intensely than positive ones. As a result, price increases stick in our minds longer. Stable or even falling product prices, on the other hand, are quickly forgotten or are not even noticed.
- Since we buy everyday products more frequently, we notice their price increases more quickly than is the case with durable goods such as motor vehicles or computers. If petrol or dairy products become more expensive, they will have a greater impact on perceived inflation.
- When the price of a particular class of product continues to rise, we usually attribute it to inflation. In fact, however, increases in quality or performance are also possible explanations for the price increases. For example, smartphones have entered higher and higher price regions in recent years. On the other hand, the devices are now more powerful and equipped with additional features that did not exist before.
- Payments for goods or services that we have debited directly from our bank account by direct debit or standing order often go unnoticed by us. Since we do not actively carry out these transactions ourselves, they are quickly forgotten in relation to the perceived inflation.
- Measured inflation is based on the price development of a specific range of goods and services. However, this may differ massively from your personal consumption behavior. For example, if you travel a lot by car, your perceived inflation will rise more sharply due to rising petrol prices than for a person who mainly uses a bicycle.
- The indication of the inflation rate always refers to a period of exactly one year. However, our memories of past price increases go well beyond that. For example, if the price of a product was last increased 1.5 years ago, we often remember it very well. However, this no longer plays a role in the calculation of current inflation.
This is just an excerpt of possible reasons why the perceived inflation for most people is significantly higher than the measured inflation rate. The aspects listed do not claim to be complete.
