New Issue of Economic and Social Review

I was interviewed for what seems to have been the EU Consumer Survey referenced in the “Misperception of Inflation” paper a couple of nights ago. I have three thoughts, having seen it from the perspective of the interviewee.

1) It’s probably unrealistic to expect a lay person to have an accurate fix on the CPI, which is quite a technical measure even if it is reported widely. It’s also unrealistic to expect that they will undertake a quantitative economic analysis to support their decisions. Most decisions are likely to be made on the basis of rules of thumb, or else on expert advice that has been mediated in some way. The CPI and expectations of future inflation will have informed the formation of the rule of thumb, or will have informed the expert advice, and individual consumers will not have to do the analysis themselves to behave more or less rationally.

2) I don’t recall anything said by the interviewer that indicated what measure of inflation respondents should focus on, even in general terms. I think this is quite a significant issue, as there were radical differences in inflation rate between different categories of product and service over the period covered by the paper. If respondents were, for example, influenced heavily by trends in services prices, even very accurate responses would have come in well above the CPI.

3) While it’s dangerous to extrapolate from a sample of one interview, I felt as I was being interviewed that the design of the questions and the tone of the interviewer combined to exert pressure to overstate inflation. (Which I of course resisted.)