Bryan Caplan & Tylen Cowen comment on a somewhat dated (but new for me) paper by a couple of Cleveland Fed economists on the fact that in a series of telephone surveys, people systematically overestimated inflation in the recent past. The curious bit in the paper is that men and women seemed to have different inflation experiences/expectations. For me the overall result (telephone poll shows inflation at 6% while CPI shows 2.7%) points to one of two biases:
- People do not know how much real inflation there is. There is probably some bias in that frequently bought items like gas and food may have a higher weight in people’s minds than occasional purchases like a home or appliances.
- CPI at least as measured in the United States is under reporting inflation. Websites such as shadow government stats have a lot more to say about this than me.
Assuming the former, what this means is that one needs to exercise caution before accepting an inflation survey on its face value. This has implications in monetary policy decision making. The Reserve Bank of India’s household survey on inflation has remained well above the wholesale and consumer price inflation reported by the government. Perhaps there is a bias here too? Will someone at the RBI even attempt what the Cleveland Fed has done in terms of an analysis of the survey responses, I wonder?