The Inflation Paradox: When Perception Clashes with Reality

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Back in June 2022, news headlines and social media were screaming about the 9.1% inflation rate. Eighteen months later, in December 2023, inflation was 3.4% – one of the biggest drops in modern history. Yet instead of celebrating, consumers remain anxious, with inflation cited as a top voter concern.

This seemingly paradoxical disconnect is due in large part to cognitive biases that skew our perceptions of the realities of price fluctuations. Economist Paul Donovan explores this in a January 20, 2024, guest essay in The New York Times titled, "Why Are Voters So Upset? Consider the Snickers Bar."

Frequency bias is one of the primary perceptions affecting consumer anxiety. Here’s why. One reason for the lower inflation rate is that prices are falling for goods like furniture, electronics, used cars, and even some clothing. At the same time, food prices have continued to rise. Because we buy groceries and other small household items so often, we are much more aware of the prices for cereal, toilet paper, and Snickers bars than we are of those for infrequent purchases like television sets or cars. This is the case even though, according to Donovan, groceries represent less than a tenth of an average household budget.