Price Sentiment of Croatian Consumers: The Upward Bias of Collective Memories
Price Sentiment of Croatian Consumers: The Upward Bias of Collective Memories

Summary/Abstract: This paper touches upon the differences between inflation perceptions and expectations of different socio-demographic groups (with respect to age, gender, income and education), a topic that has not so far been adequately represented in Croatia. The analysis is based on a unique dataset obtained from Consumer Surveys (conducted by the Croatian National Bank). Indicators of perceived and expected inflation are estimated in two separate ways: as direct responses of individual consumers and as the balances of responses to the questions about the perceived and anticipated inflation rates. Both observed measures reveal significant differences in the inflation sentiment between the well-off and the socio- -economically disadvantaged consumers. The divergence is particularly pronounced with respect to household income, while the differences between male and female respondents are negligible. Psychological explanations of these differences are found in behavioural heuristics. The availability heuristic is proven to be valid through the phenomenon that older people (who have dealt with several hyperinflation episodes in their adult life) produce significantly higher inflation sentiment. The associativeness heuristic also performs well, having in mind that Croatians obviously relate today's rising economic uncertainty with hyperinflation (as in the early 1990s), opposing both real economic trends and economic theory.

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