You are currently browsing articles tagged inflation.

The Fed says the inflation rate over the last year is 1.2 percent, but a survey says consumers think it’s at 3 percent. The WSJ looks at people’s mental accounting of inflation. Some highlights.

  • “(People) pay more attention to the prices of things they buy frequently, or to prices that fluctuate a lot, such as gasoline and meat. In a Bank of England survey, consumers identified household energy, gasoline, transportation, food and drink as the top influences on their perception of inflation. In the U.S. last year, prices rose sharply in all of those categories, with the exception of food and drink.”
  • “A recent paper in the Journal of Consumer Affairs suggests that inflation expectations tend to be higher among people who are older, poorer or less-educated. A study by Cleveland Fed economists found inflation perceptions to be about 50% higher among women than men.”
  • “Outside of housing, middle-income consumers have experienced more inflation than other income groups over the past year, in part because they devote a relatively large share of their budget to energy and transportation. For the year ended in October, prices on the items consumed by the average middle-income household rose 2.1%, compared with only 1.8% for households with income of $150,000 or more, according to a Wall Street Journal analysis of Labor Department data.”
  • “Geography matters, too. Prices in western U.S. states rose only 0.6% in the year ended in October, compared with 1.5% in the Northeast and Midwest.”

Tags: ,

On Wednesday, the Nudge blog linked to David Leonhardt’s Wednesday column on people’s perceptions of inflation.

Price increases are simply more noticeable — more salient, as psychologists would say — than price decreases. Part of this comes from the notion of loss aversion: human beings dislike a loss more than they like a gain of equivalent size. If you have to sell your house for less than you bought it for, you’re really unhappy. You hate that ground chuck now costs $2.83 a pound, but you didn’t notice that oranges are 31 percent cheaper than they were a year ago.

For most people, the Consumer Price Index (or core inflation, if you prefer) is a relatively meaningless number – even if it provides a better picture of inflation than a gallon of gas. More meaningful is your personal inflation rate; the increase in prices of items in your household budget weighted by the amount of each item your buy.

Continue reading the post here.

Tags: ,