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John Kay on perceptions of inflation
22nd May 2008
Trust John Kay to make plenty of sense of the furore over whether the official inflation numbers are accurate in telling us what is happening to consumer prices
Despite the rather amateurish attempts of journalists at various tabloid newspapers to contruct their own crude indicator of consumer price inflation, the truth is that the ONS does more or less the same as the hacks, but in a much more systematic, rigorous and careful manner. The key to understanding our perceptions of inflation is to be aware of the issue of salience. We often give too much weight to the information that is most salient in our minds.
John writes
“Perceptions of inflation are formed, not by the Office of National Statistics, but by the most salient prices. The price of petrol is highly salient: not only do people buy petrol regularly, but even when they are not buying it, they routinely pass signs that display the price. We are most observant of the prices of goods we buy regularly and often and of the cost of undifferentiated products, such as petrol or milk, for which price comparisons are easier and likely to stick in our minds. Utility prices are salient – with the exception of telecoms whose price structure is bewilderingly complex.”
The rest of the article is here
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.