Inflation is greatly overestimated
With an average of seven percent per month, the perceived inflation rate from January 2001 to December 2002, i.e. one year before and one year after the introduction of euro cash, was four times higher than the official rate. This was the result of an analysis of the "Index of Perceived Inflation" (IWI) developed by Hans Wolfgang Brachinger from the University of Friborg in cooperation with the Federal Statistical Office. The scientists suspect that the cause was that many frequently purchased goods became more expensive than average during this time.
The IWI, which was developed on the basis of perception psychology, is intended to reflect how consumers subjectively perceive inflation. It relies on three key assumptions: First, price increases are valued more highly than decreases. Secondly, the increase in the price of frequently bought products is particularly important, and thirdly, since the introduction of euro cash, perception has always been based on an average last D-Mark price, although its influence is gradually decreasing.
Even today, at an average of 7.4 percent per month, perceived inflation is still around the same level as when the euro was introduced. There is still a striking difference between perceived and officially determined inflation.
