Is the consumer's perception of the growth of the general level of prices the same as the official inflation rate? (Evidence of perceived inflation from the basket of foods and beverages)

Consumers' perceptions of inflation can differ markedly from official statistics, especially in heterogeneous market environments. A significant discrepancy between public perception and official inflation figures can erode trust in governmental statistical agencies and central banks, potentially undermining the objectives of monetary policy. Furthermore, households may alter their economic behaviors, including consumption, investment, and savings, based on their perceived inflation rates, leading to deviations from policymakers' intended goals. This study adopts a cognitive approach to examine this phenomenon. Within a behavioral economics framework, we introduce an index to measure the perceived inflation of Iranian citizens. This index is derived from survey data and official statistics provided by the Statistical Center of Iran, specifically focusing on the food and beverage consumption group in 1399, disaggregated by province. Our findings indicate that West Azerbaijan province reported the highest perceived inflation for food and beverages, while Golestan province reported the lowest, highlighting a substantial disparity compared to official inflation rates. Even in Tehran, Iran's most populous province, residents perceived a significantly higher inflation rate, estimated to be 11.8 percentage points above the official figure. Factors such as diverse consumption patterns, household economic conditions, accessibility to information, and personal experiences can contribute to the gap between perceived and official inflation. Understanding this discrepancy is crucial for policymakers in formulating effective economic and social policies.