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June 19, 2008

Why Worry About the Economy?

Jill Stoddard
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The Washington Post reported yesterday that although Americans’ perceptions of the economy are very negative, two key measures show that the economy is not as bad as it may seem: unemployment is at 5.5 percent and inflation at 4.2 percent.

One reason for this disparity, according to Professor Eric Johnson, may be the frequency with which consumers are seeing higher prices. “Things that you buy more frequently and that have large percentage increases will weigh more in people’s perception of inflation,” Johnson was quoted as saying.

He elaborated in the article with the following example: a person paying an extra $25 to fill up the gas tank is reminded of that cost once a week, or more often if you count the times he or she sees a $4-per-gallon price in giant numbers on a sign. In contrast, a rent increase of $100 would only happen once a month but would have the same financial impact.

Image credit: Cole Huggins