Economy & You
Why Your Grocery Bill Feels Worse Than Official Inflation
Why the inflation people feel often seems higher than the official rate, and what explains the gap between household experience and statistics.
The news says inflation is 4 percent, but your grocery bill seems to have jumped far more. Are the statistics wrong? Not necessarily. Several reasons explain the gap.
1. Frequent purchases stick in memory
People notice prices of things they buy often, such as milk, vegetables, petrol and tea. If these rise sharply, inflation feels high, even if prices of less frequent purchases, such as electronics or clothing, are stable or falling.
2. Your basket is not the average basket
The CPI uses an average basket for all households. But your spending may differ:
- A family spending more on food feels food inflation more.
- A renter in a city feels rising rents more.
- A student feels rising fees more.
3. Price levels vs inflation rates
When inflation falls from 7 percent to 4 percent, prices are still rising, just more slowly. People compare today’s prices with those a few years ago, and the cumulative rise feels large.
4. Big increases are memorable
A sudden spike in onion or tomato prices gets headlines and conversation, even if it is temporary.
5. Losses feel bigger than gains
Due to loss aversion, price increases feel more painful than price drops feel good.
Inflation expectations
The Reserve Bank of India surveys households about their inflation perceptions and expectations. Households usually report perceived inflation that is higher than the official CPI rate. Since expectations can affect wages and spending, the RBI watches them closely.
What to do
- Track your own spending to see your personal inflation rate.
- Compare prices across shops and brands.
- Adjust your budget and savings plans to your actual costs.
A family spends a third of its budget on food. In a year when vegetable prices jump 20 percent, but electronics and clothing prices barely change, official inflation is 5 percent. The family feels its costs have risen far more, and for its budget, they have.
Official inflation measures an average basket. Your personal inflation depends on what you buy.
- Frequent purchases shape how inflation feels.
- Your personal basket may differ from the average CPI basket.
- Slower inflation still means rising prices.
- RBI surveys show households usually perceive higher inflation than official figures.
No recording for this one yet - EconReader can read it aloud for you.