The public’s estimates and predictions of inflation are significantly, and systematically, related to the demographic characteristics of the respondents…[and] even after we hold constant income, age, education, race, and marital status…women in our survey tended to think inflation was 1.9 percentage points higher than men. [There are more interesting findings, so read on.] Words: 987
So says Dave Altig of The Federal Reserve Bank of Atlanta (http://www.frbatlanta.org/) in edited excerpts from an article* entitled Getting The Questions Right.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.
Altig goes on to say, in part:
“…In an exit poll [during last Tuesday’s election] of more than 25,000 voters conducted by NBC News, 37% identified rising prices [i.e. inflation] as the biggest problem facing people like them [as compared to] unemployment (38%), …taxes (14%) and the housing market (8%).
The policy stakes on understanding these responses are pretty high. In the end, the cost of inflation comes in the form of how it may distort behavior and the allocation of resources so the expectation or perception of significant inflation is at least as pernicious as the measurement itself.
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What, exactly, does this concern about “inflation” actually reflect? Probably not what we think. Some time ago, my colleagues Mike Bryan and Guhan Venkatu (from the Cleveland Fed) made note of “The Curiously Different Inflation Perspectives of Men and Women“…[in a study of] household inflation perceptions and expectations. They used a monthly survey of approximately 500 to record respondents’ perceptions of price changes over the past 12 months, as well as their expectations for price changes over the next 12 months Their findings are pretty informative:
The data indicate that the public’s estimates and predictions of inflation are significantly and systematically related to the demographic characteristics of the respondents.
- People with high incomes perceive and anticipate much less inflation than people with low incomes,
- married people less than singles,
- whites less than nonwhites, and
- middle-aged people less than young people.
This Commentary describes what is perhaps the most curious observation of all: Even after we hold constant income, age, education, race, and marital status,
- men and women hold very different views on the rate at which prices are changing.
…[S]tatistical tests reveal that even after we adjust for the respondents’ age, race, education, and income,
- women in our survey tended to think inflation was 1.9 percentage points higher than men.
A similar examination of respondents’ predictions of future inflation yields the same basic result: After we account for other major demographic factors, on average,
- women expected [future] prices to rise 2.1 percentage points more than men.
It is important to note that this result was not unique to the Cleveland Fed study:
An examination of survey data collected by the University of Michigan (which has recorded the inflation forecasts of U.S. households on a monthly basis since 1978) reveals that:
- women consistently hold higher inflation expectations than men, even after we hold constant other important demographic characteristics of the respondent.
Most intriguing of all, the systematic overstatement of inflation by all consumers, relative to official statistics, and the difference in responses between men and women are not a result of ignorance about the facts, according to those official statistics:
In the August 2001 FRBC/OSU survey, we sought an answer to this question by asking, “Have you heard of the Consumer Price Index (CPI) before?” and “By about what percentage do you think the CPI went up (or down), on average, over the last 12 months?”
- A significantly higher proportion of men had heard of the CPI compared to women (75 percent versus 61 percent, respectively).
- For those who had heard of the CPI, the average perception about how much it had risen over the past 12 months was surprisingly accurate — a perceived increase of 2.9 percent compared to an actual increase of 2.7 percent.
- It is also very interesting that men and women perceived the CPI’s growth rate nearly identically (2.8 percent versus 3.1 percent, respectively.)
- However, of those who knew of the CPI, the average perception of price increases was 6.7 percent and, even within the subgroup of respondents who knew of the CPI,
- men had a significantly lower perception of price increases than did women (6.0 percent vs. 7.4 percent).
In other words, the public believes that prices are rising more than the CPI reports, and women more so than men.
There are a couple of hypotheses that could be advanced to explain results like this [such as that:]
- the conspiracy crowd is correct, and the official statistics are rigged and vastly understate true inflation. That, however, wouldn’t get us anywhere near an understanding of why survey responses about inflation would be systematically different across men and women, higher- and low- income individuals, and just about any other demographic cuts we might make….
- individuals’ responses reflect price changes in their own personal market basket, which may differ from that of the average urban wage earner whose habits are reflected in the Consumer Price Index (CPI). That might explain why any demographic sub group could arrive at different inflation perceptions, but it doesn’t explain why respondents as a whole systematically overstate inflation relative to the CPI.
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I think the most likely explanation is that the survey respondents are:
- expressing a much different concern than whether they believe food, gas, autos, banking services, or whatever are increasing or are likely to increase faster than the official statistics indicate. My guess is that they are
- telling us that they are concerned that their real — or inflation-adjusted — incomes are not rising fast enough to comfortably sustain their desired spending:
The policy stakes are high. In the current environment, the policy prescription for fighting an incipient rise in inflation expectations would be much different than one deployed to address the reality of the chart above….”
*http://macroblog.typepad.com/macroblog/2012/11/getting-the-questions-right.html (We monitor inflation trends and inflation expectations from a number of perspectives: Treasury Inflation Protected Securities (TIPS), forecasts, and the Business Inflation Expectations (BIE) survey, to name just three, and all are available on the Atlanta Fed’s Inflation Project for the terminally curious to monitor with us.)
Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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