The inflation rate: different interpretation or manipulation

For a while, the main topic in the media and in the public has been price growth and high inflation. It comes naturally to us to understand what inflation actually is. It is due to the fact that we feel its effect every day and are aware of it. But this term can also serve to manipulate the public. Before we talk about how to do it, let’s define what inflation exactly means.

What exactly does inflation mean?

Inflation represents a rise in the general level of prices in an economy. At the same time, two points are important for defining inflation. First, inflation represents an increase in the general level of prices and is measured through the index of the cost of living, that is, we cannot talk about inflation if there is an increase in the price of one product or a small group of products. And secondly, inflation represents a trend of constant price increases.

The publication of data about the level of inflation is very specific. Several datasets are published about the movement of prices. These are cost of living indices and retail price indices, and can be found on the website of the State Statistics Office. But in the world, as well as in our country, only one of them is data on the official inflation rate, which is usually reported.

It is the growth of the index of the average annual cost of living (average annual inflation) or just the growth of the annual cost of living (annual inflation rate). So when we talk about inflation, we аre talking about the rise in the cost of living. Not for retail prices. This is important to know because some use data on retail price growth to present a distorted picture of inflation.

4 values for measuring inflation

Inflation, which is professionally measured through changes in the average annual cost of living index, is measured through several values, and is expressed through four more important ones, depending on what is being compared. The cost of living index is usually compared: with the previous month, with the same month of last year, with the beginning of the year and with the average of the months spent in the year with the same period of last year.

In the specific case, in all four categories we have different percentages, and in September 2023 they were: -0.1% compared to August this year; +6.6% compared to September last year; +4.8% compared to the beginning of the year and +11.5% compared to the months of the year from the same period last year, i.e. January – September 2023 with the same period 2022. The latter figure or 11.5% for the average annual inflation is officially the most frequently used inflation indicator, although sometimes the one for annual (not average) inflation is also used, in this case +6.6%.

All other indicators are useful for economic analyses, but are not an official indicator of inflation and should be reported with caution and with an accurate indication of what they are about. Otherwise, we would have a different interpretation and easily manipulate the public.

If one wants to show better results, one will choose one of the presented data that has a lower growth, in this case the annual cost of living index. And for opposite purposes, that is, to show the situation as worse, sometimes the data with a higher growth or data for the index of retail prices is selected, depending on the specific situation. Therefore, very often in the public, certain interlocutors or media choose the value of the growth index of retail prices which can often be higher, instead of the growth of the cost of living. Since inflation is a sensitive topic, one should be extremely precise and responsible when presenting data.