There is a persistent mystery in contemporary economic life: the government announces that inflation has cooled to manageable levels, and yet the public remains convinced that prices are out of control. This is not mass delusion. It is the predictable result of measuring an economy one way while living it another.
The consumer price index, that venerable statistical instrument, tracks a basket of goods weighted by average spending patterns. It is a marvel of bureaucratic engineering, updated regularly to reflect changing consumption habits. But here is the problem: no one is average. A retiree on a fixed income spends proportionally more on healthcare and utilities than the index assumes. A young family with children spends more on food and childcare. When the prices of necessities rise faster than discretionary items — and they often do — the official number understates the pain felt by those with the least flexibility in their budgets.
The frequency illusion
Psychologists have documented what they call the "frequency illusion" — once you notice something, you see it everywhere. Prices work similarly. You fill your car with petrol once a week; you notice when it costs more. You buy eggs and milk several times a month; those prices are burned into memory. But you buy a television once every several years, and if its price has fallen dramatically, you do not experience that decline as a daily relief.
This asymmetry is baked into human cognition. Losses loom larger than gains, a phenomenon behavioral economists call loss aversion. A ten percent increase in the cost of bread registers more powerfully than a ten percent decrease in the cost of electronics, even if the electronics savings are larger in absolute terms. The index treats these as offsetting; the household does not.
What shrinkflation obscures
Then there is the matter of shrinkflation, that quiet trick by which manufacturers reduce package sizes while holding prices steady. The official statistics attempt to adjust for this through quality and quantity hedonic adjustments, but the adjustments are imperfect and often lag reality. When your box of cereal contains fewer ounces than it did a year ago, you have experienced a price increase that may not fully appear in the data.
Similar distortions arise from substitution effects. If beef becomes expensive and consumers switch to chicken, the index may record this as a rational response that mitigates inflation's impact. But the consumer who wanted beef and settled for chicken has experienced a decline in living standards that the number does not capture. Statistical neutrality is not the same as lived experience.
Our take
None of this means the official statistics are wrong or that economists are engaged in some conspiracy to gaslight the public. The CPI does what it is designed to do: provide a standardized measure for policy purposes. But policymakers and commentators would do well to remember that when citizens say prices feel out of control, they are not being irrational. They are reporting accurately on their own lives. The gap between the index and the intuition is not a failure of public understanding — it is a reminder that aggregates flatten the texture of economic experience, and that trust in institutions erodes when official numbers seem to contradict what people see with their own eyes.
