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Inflation isn’t as bad as you think. Or at least that’s the premise of a recent article on NPR’s Planet Money.
According to economists, consumers consistently overestimate inflation. And not just here in the United States, either. Rather, this misperception appears to be a common occurrence in many countries. Why? Good question.
More than likely, people tend to overestimate inflation because they mostly associate it with things that they buy most frequently, such as gas or groceries, as opposed to bigger ticket items that may make up a larger part of their budget.
It’s also been well documented that the media tends to provide much more coverage of price spikes vs. instances in which prices are declining. And, of course, there’s a tendency for people to dwell on the negative rather than celebrating the positive.
As an example… Remember last spring when everyone was predicting gas at $5/gallon before the end of the summer? That never happened. Instead, gas prices tumbled through the summer. And yet you never really heard about that. People (the media in particular) just stopped talking about it.
More recently, when prices once again began to tick upward, gas prices were in the news again even though the summer’s predicted price spike never materialized.
What do you think? Do people tend to overestimate inflation? Or do official inflation estimates underestimate the true inflation rate?