Working Paper: Revisiting the inflation perception conundrum

Working Paper - November 2019 - No. 144

Authors Abildgren, Kim; Kuchler, Andreas
Subject Inflation, wages and prices; Economic activity and employment; household balance sheets; Statistical method
Type Working paper
Year 2019
Published 4 November 2019
The level of inflation perceived by Danish households persistently exceed observed inflation levels measured by official Consumer Price Indices. Accounting for even several of the factors usually put forward to explain the overestimation bias can only reduce it slightly. Food prices carry a larger weight in perceived inflation than in the official CPI, and we find clear seasonal effects in the inflation perception bias. The bias is also reflected in the households' expectations of the future inflation level, but we find a much smaller bias in the expectations regarding future changes in inflation rates.