KUALA LUMPUR, May 19 ― Bank Negara Malaysia (BNM) suggested today that public perception of inflation tends to be higher than the actual rate, with the bias shaped by their personal experience of paying for food and transport.
This comes as the central bank announced a headline inflation rate of 4.3 per cent in the first quarter this year compared to 1.7 per cent in the previous quarter, owing to the hike in fuel pump prices and shortages of fresh fruit.
“Public perception of inflation is in fact influenced by frequently purchased price such as food. This item typically experience higher inflation.
“However household also spends on other items, such as clothing which are in fact experiencing price decline,” BNM governor Datuk Muhammad Ibrahim said in a press conference here.
This perception is also formed by spending on transport, a sector high price volatility, he said.
In comparison, Muhammad said the Consumer Price Index (CPI), or the inflation rate, is a reflection of overall price changes in economy that reflects average consumption of an average household.
In a supplementary article titled “Inflation: Perception vs Reality”, BNM said that public perception of inflation remained high even in a low inflation environment.
The article said the disconnect can among others be attributed to natural biases, since consumers have different information sets than the ones used to compute CPI.
Besides the “frequency bias” mentioned by Muhammad above, the article also highlighted the “memory bias” where consumers tend to remember price hikes but not declines.
Muhammad said today that BNM expected that inflation will average between 3 and 4 per cent this year.