Also, say you typically buy beef, pork, chicken, beef, salmon, avocados, cheese, nuts, beer, and wine and everything stays the same price except the beef, which goes up 15% per year. What are you going to notice? The beef, obviously. Is your perception going to be that overall inflation is 2% because only the beef went up, or is it going to be that inflation is out of control because beef went up 15% in just one year? Probably that inflation is out of control.
Humans are terrible at estimating inflation because humans have evolved to pay attention to things that change, and to not pay attention to things that don’t change or that change very slowly.
Also, say you typically buy beef, pork, chicken, beef, salmon, avocados, cheese, nuts, beer, and wine and everything stays the same price except the beef, which goes up 15% per year. What are you going to notice? The beef, obviously. Is your perception going to be that overall inflation is 2% because only the beef went up, or is it going to be that inflation is out of control because beef went up 15% in just one year? Probably that inflation is out of control.
Humans are terrible at estimating inflation because humans have evolved to pay attention to things that change, and to not pay attention to things that don’t change or that change very slowly.