April 21, 2006 | posted by Michael Baxter in Uncategorized |

Yesterday we told how US inflation is picking up, and how individuals think inflation is higher than it really is.

For those who are confused about how inflation can be so low, when they seem to be forking out more money for their council tax and utility bills and baby sitting and petrol, here’s some more news to confuse you.

According to the Office of National Statistics, CPI inflation fell to 1.8% last month; that’s the lowest level for a year.

It’s down in Europe too, with the eurozone rate down to 2.2% from 2.3%.

Yet according to the Bank of England, people’s perception of inflation is that it’s around 2.8%.

There are several explanations

One is that the ONS is wrong, and that the basket of goods it uses to measure the price index is not made up appropriately.

Another is that inflation is higher in some regions - the South East for example, - making perceptions in these regions out of step with national average.

Another is that individuals are wrong; that we all tend to moan, and only ever notice bad news.

But whichever it is, the danger is the higher perceptions will become a self fulfilling prophecy, as wages rise to meet expectations.