Inflation, perceived (feeled inflation rate)

The deterioration in the value of money as perceived by individual consumers, without regard to the rate of price increase calculated by official statistics. The term emerged with the introduction of the euro as a circulating currency on January 1, 2002 (“teuro”). – The danger of an overestimated rate of money erosion lies in the fact that the expectation of real income among private households is underestimated, which can lead – to a reluctance to spend and – to exaggerated wage demands and a wage-price spiral. Therefore, the perceived inflation rate is roughly equivalent in its negative effects to an actual price increase and is closely targeted by the ECB. – Perceived inflation in Germany after the introduction of the EUR as cash was close to ten percent, far above the officially measured rate of just over two percent. In the first half of 2008, the official price increase was a good three percent; perceived inflation climbed to twelve percent. – The explanation given for this large discrepancy is the fact that consumers base their perception of inflation on buying frequency (purchase frequencyness) and not – as in the official basket of goods – on the weight of the individual good in total expenditure; in other words, people perceive price increases more strongly the more often they buy the good. This includes foods such as bread, butter, fruits and vegetables, and gasoline. – See agricultural policy, biofuels, goods, purchase frequent, inflation expectation rate, inflation targeting, price comparison, reference price, teuro, price adjustments, stimulus threshold, commodity prices, foreshadow effects, commodity hoards, housing rents, second-round effects. – Cf. ECB Monthly Bulletin of July 2002, pp. 19 ff; Deutsche Bundesbank Monthly Bulletin of July 2002, pp. 22 ff, Deutsche Bundesbank Monthly Bulletin of January 2004, pp. 15 ff, ECB Monthly Bulletin of April 2005, pp. 33 ff, ECB Monthly Report of July 2005, pp. 72 ff. (here also reasons for the distorted perception of actual price developments), ECB Monthly Report of May 2007, pp. 67 ff. (textbook presentation; many overviews; references), ECB Monthly Report of June 2007, pp. 12 ff. (different values for perceived inflation in the individual countries), Deutsche Bundesbank Monthly Report of November 2007, pp. 56 f. (measured relationship between perceived and expected inflation rates; overviews).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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