There is a persistent gap between what economists report and what households feel, and it is not a matter of innumeracy or paranoia. When central banks announce that inflation has cooled to target, millions of people glance at their bank statements and conclude that someone, somewhere, is lying. They are not wrong to be suspicious — they are simply measuring a different thing.
The consumer price index, that venerable gauge of purchasing power, is a weighted average of thousands of goods and services. It includes items most people buy rarely (televisions, airline tickets, new cars) alongside those purchased weekly (bread, eggs, fuel). When the price of electronics falls while the price of food rises, the index can remain stable even as the kitchen budget explodes. The statisticians are doing their jobs correctly; the problem is that correctness and relevance are not synonyms.
The frequency illusion, except it's real
Psychologists have long understood that humans weight recent and repeated experiences more heavily than abstract data. A family that fills the petrol tank twice a week notices a price increase far more acutely than a once-a-year bump in furniture costs, even if the latter contributes equally to the index. This is not cognitive failure — it is rational prioritisation of information that matters for immediate survival.
Food and energy, the categories central banks often strip out to calculate "core" inflation, are precisely the categories most families cannot strip out of their lives. Core inflation is a useful signal for monetary policy, but it can feel like a cruel joke to someone standing in the supermarket aisle watching the price of cooking oil climb for the third month running.
The substitution problem
Official indices assume consumers substitute cheaper alternatives when prices rise — switching from beef to chicken, branded cereal to store-label. This assumption is methodologically defensible and emotionally tone-deaf. Substitution is a coping mechanism, not a neutral choice. When a family downgrades, they experience a decline in living standards that the index registers as price stability. The mathematics are correct; the lived experience is one of loss.
Moreover, substitution has limits. Rent cannot be swapped for a cheaper alternative without moving, and moving carries its own costs. Healthcare is not a product category where consumers cheerfully shop around. Education, childcare, insurance — these are sticky expenditures that dominate household budgets and resist the elegant substitution logic of the textbook.
Whose basket is it anyway?
The representative basket of goods is, by design, an average. It reflects the spending patterns of a median household that may not exist in any particular postcode. A retiree on a fixed income, spending disproportionately on healthcare and utilities, faces a personal inflation rate that diverges sharply from the headline number. A young urban renter, allocating half their income to housing, inhabits a different inflationary universe than a homeowner whose mortgage was locked in years ago.
Some statistical agencies now publish alternative indices — for the elderly, for urban consumers, for different income quintiles — but these rarely make the evening news. The single headline figure persists because simplicity is a political convenience.
Our take
The gap between official inflation and felt inflation is not a bug; it is a feature of aggregation. Indices are tools for policymakers, not mirrors for individual experience. The sooner we accept that the number on the news describes a country and not a kitchen, the sooner we can have honest conversations about who bears the cost of price instability — and who, quietly, does not.
