Economic Research and Perspectives

Economic Research and Perspectives

Inflation Perceptions and the Affecting Factors in Tabriz

Authors
zhila saleki 1
Reza Ranjpour 2
Elham Nobahar 3
1 Master of Economics Systems Planning, Faculty of Economics and Management, Tabriz University, Tabriz, Iran
2 Associate Professor, Department of Development Economics and Planning, Faculty of Economics and Management, Tabriz University, Tabriz, Iran
3 Assistant Professor, Department of Development Economics and Planning, Faculty of Economics and Management, Tabriz University, Tabriz, Iran
10.48311/ecor.2025.13666
Abstract
This research examines the perception of inflation in two qualitative and quantitative dimensions and its relationship with the factors that probably affect it. This survey was conducted in an integrated framework through a sample survey including 384 consumers of Tabriz city in November 1402. The results show that the average inflation reported by consumers (inflation perception rate) is 70.54%, which is much higher than the inflation measured by official statistics. Also, the level of perception of inflation in October and December (59.8 and 57.83, respectively) was much higher than the official inflation statistics. A downward trend was observed in the expected inflation rate, and after a month passed and the announcement of the official inflation rate statistics, a similar trend was observed in the official inflation rate. Inflation perception is higher for women, part-time workers, production workers, unemployed educated people and married people. Also, very little knowledge of the concept of inflation and related statistics, incorrect reminders of past prices, the disproportionate effect of frequent purchases, the asymmetric detection of price increases and decreases, the level of household income, play an important role in explaining the highest perceptions of the inflation rate. The role of media in the understanding of inflation has been very prominent, and the highest level of understanding of inflation is related to the impact of foreign media reports. Also, changes in the gold and foreign exchange market have had the greatest impact on the estimation of the inflation rate from the point of view of consumers. Therefore, the results show the complex combination of different factors can effect on mentality of customer about inflation that this is more beyond the official statistics.

Aim and Introduction

The central bank operates by setting an inflation target and implementing monetary policies to achieve its economic goals. The accurate estimation and calculation of actual inflation in society are crucial for establishing the correct inflation target. Any discrepancy between the set inflation target and real inflation can disrupt the central bank's policy-making. If the actual inflation differs from the inflation perceived by society, it can further complicate the central bank's decision-making process.

Society's perception of inflation, as reflected in inflation expectations, refers to consumers' personal feelings and assessments of the rate at which market prices are rising. This perception is often associated with an increase in the cost of living, products, and services, as well as a decrease in the standard of living. Criticisms have been raised regarding the rationality of individuals when estimating inflation rates. Carroll's epidemiological model (2001) posits that individuals form their expectations of future inflation based on the information they receive, such as expert forecasts published in articles. Those who do not encounter such articles may rely on previous inflation statistics and forecasts they have come across.

Initially, the influence of the media on society's perception of inflation was considered. Subsequent developments in this theory led to the identification of various experimental factors from different societal studies that can impact this perception. It is crucially important to note that factors other than those involved in the calculation of the inflation rate can also influence this index.

Methodology

This study investigates inflation perception through both qualitative and quantitative approaches and explores its relationship with potential influencing factors. The Consumer Inflation Expectations Index quantifies the percentage by which consumers anticipate prices of goods and services to fluctuate over the next 12 months. The index is constructed by developing a questionnaire that reflects the socio-economic conditions of the countries under study. The questionnaire encompasses various inquiries pertaining to past experiences of price changes, personal financial circumstances, business conditions, purchasing power, expectations regarding interest rates and inflation, and significant purchasing and saving intentions. Understanding the determinants of perceived inflation is vital for the efficacious implementation of policies within a society. This research was conducted within a comprehensive framework, evaluating a sample of 384 consumers in the city of Tabriz. Participants were selected randomly in November 2023 and consisted of either household heads or family members responsible for a substantial proportion of household expenditures, all aged 15 and older. The causal-comparative method was utilized to analyze the collected data, acknowledging that individual perceptions of inflation may be influenced by variables such as geographical location, gender, level of knowledge and education, performance, attitude, and subjective norms. Some of these variables may be inherent traits that are unchangeable, while others may be external factors beyond the control of the researcher or unethical to manipulate. Furthermore, this method was employed to identify factors associated with unsuccessful policy implementation to prevent their recurrence, as well as to pinpoint and cultivate beneficial factors.

Findings

The survey results from this study indicate that the perceived inflation rate in Tabriz in November 2023 was 70.54%, compared to 50.40% as reported by the Iranian Statistics Center for the same period, showing a discrepancy of approximately 20.14% between the community's perceived inflation rate and the official inflation rate. Additionally, the perceived inflation rate for October 2023 was estimated at 59.80%, which is higher than the official inflation rate of 51.20%. The forecasted perceived inflation rate for December 2023 was also examined, estimated at 57.83%, showing a decreasing trend compared to November's perceived inflation rate. This rate was compared with the official rate of 70.49% reported by the Statistics Center. The significant gap between perceived and official inflation rates confirms the high bias in the perceived inflation rate relative to the official rate and indicates a concurrent movement between the actual inflation rate and the perceived inflation rate. As a result, the impact of expected inflation, derived from perceived inflation, on the official inflation rate is validated. The results also revealed that perceived inflation rates are higher among women, part-time employees, manufacturing workers, unemployed educated individuals, and married people. Factors such as very low knowledge of the concept of inflation and related statistics, incorrect recollection of past prices, the disproportionate effect of frequent purchases, asymmetric perception of price increases and decreases, and household income levels play a significant role in explaining the highest perceptions of inflation rates. Furthermore, individual behaviors in purchasing and consuming goods have led to increased perceptions of inflation. The role of media and social networks in shaping inflation perceptions has been very prominent, with the highest perceived inflation rates attributed to the influence of reports from foreign media. Changes in the gold and currency markets also had the greatest impact on consumers' inflation rate estimates.

Discussion and Conclusion

The achievement of objectives stemming from policy implementation relies heavily on the accurate estimation of the said policies and the factors influencing their execution. This study has revealed that the perceived inflation rate and its influencing factors may deviate from the official inflation rate and its contributing factors. Inaccurate estimations heighten the risk of policy misalignments with predetermined goals. It is therefore imperative that estimating the perceived inflation rate and its influencing factors falls within the purview of executing centers and is factored into the planning of societal policies as a whole
Keywords
Inflation Perceptions
Inflation expectations
Induced inflation
Consumer Survey

Subjects

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