Editing Inflation (section)

=== Official vs. true vs. perceived inflation ===
The true inflation is one percentage point lower than the official one, according to research. Therefore, the 2% inflation target is needed to prevent the true inflation being close to zero or even deflation. The reasons are the following:<ref>{{cite web|url=https://cals.ncsu.edu/news/you-decide-why-stop-at-an-inflation-rate-of-2/|title=You Decide: Why Stop at an Inflation Rate Target of 2%?|date=January 29, 2023|website=CALS News|publisher=NC State University}}</ref>
* '''Substitution effect''': People buy fewer products with the highest price rises and more of those whose prices have risen less. Therefore, the price of their non-fixed shopping basket rises less than that of a fixed shopping basket.
* '''Unobserved quality improvements''': Even though statisticians try to take quality improvements into account, they are not able to do it fully. This is why people rather buy current products at the higher prices than old products at their old prices.
* '''New goods''': The current shopping basket is much better, because it has goods that you previously could not even dream of.<ref>{{cite web|url=https://www.dummies.com/article/business-careers-money/business/economics/inflation-usually-overestimated-228118/|title=Why Inflation Is Usually Overestimated|author=Dan Richards|author2=Manzur Rashid|author3=Peter Antonioni|date=November 1, 2016|publisher=John Wiley & Sons}}</ref>

Nevertheless, people overestimate the inflation even vs. the measured inflation. This is because they focus more on commonly-bought items than on durable goods, and more on price increases than on price decreases.<ref name=StatisticsCanada>{{cite web|date=January 19, 2022 |publisher=Statistics Canada |title=The naked eye versus the CPI: How does our perception of inflation stack up against the data? |url=https://www.statcan.gc.ca/o1/en/plus/256-naked-eye-versus-cpi-how-does-our-perception-inflation-stack-against-data}}<!-- auto-translated from Finnish by Module:CS1 translator --></ref> On the other hand, different people have different shopping baskets and hence face different inflation rates.<ref name=StatisticsCanada/>

[[Cumulative process|Cumulative]] inflation due to the [[compound interest|compound effect]] can impact the perception of inflation.<ref name="n873">{{cite journal | last=McGranahan | first=Leslie | last2=Paulson | first2=Anna L. | title=The Incidence of Inflation: Inflation Experiences by Demographic Group: 1981-2004 | journal=FRB of Chicago Working Paper | date=2005 | url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3887185 | access-date=23 April 2025}}</ref>