Perceived Inflation in Germany: Determinants and the Role of the Basket of Goods

Abstract In times of high price increases, the perceived (‘subjective’) inflation rate is of particular importance for decisions on monetary, distributional, and growth policies. This paper measures the perceived inflation rate in April 2022 and again 12 months later using a representative sample for Germany and examines differences among various population groups. The findings indicate that perceived inflation rose strongly between 2022 and 2023 to more than three times the official inflation rate across most spending categories. Significant differences prevail, however, with regard to individual education level, age, and gender. More frequently purchased types of goods seem to be assigned a higher weight and, hence, have a larger influence on perceived inflation. Finally, a counterfactual analysis shows that the difference between perceived inflation and the official rate is only to a minor extent driven by deviations of individual consumption structures from the statistical basket of goods.