I’ve mentioned Patrick Chovanec’s blog before, today he has an interesting post that illustrates how inflation can very much be a psychological phenomenon: by way of his personal experience with rising local KFC prices:
How does my KFC experience in Beijing compare? A year ago, my standard meal cost RMB 21.50. A couple of months ago it rose to RMB 25.50. Today, for the first time, it set me back RMB 28.50. For those keeping track, that’s a 32.6% price hike in a single year.
There’s nothing scientific about this sample. It’s purely anecdotal. Perhaps KFC, or the Beijing market, is an aberration (I’m eager to hear anyone’s theories). But I think it’s a data point worth noting, such caveats aside. KFC isn’t some outlier in the Chinese economy, like high-priced Starbucks that still caters mainly to young, cosmopolitan latte-sippers. KFC is incredibly popular with the laobaixing (the “common people:), who find chicken — especially the localized versions offered at KFC — far more familiar and appetizing than either coffee or burgers. It outnumbers McDonald’s 2:1, with over 2,000 outlets and a reach that extends far into 3rd and 4th tier provincial cities.
As he states in his post, it’s ridiculous to challenge the Chinese government’s official inflation statistics based on this one simple example. But I think it is a very common occurrence and something we see and experience more often than not. When I talk to my relatives living overseas, they could care less what the official line is on prices – they talk about how much a cup of coffee or tea costs, or why rice has gotten so expensive, or, like Professor Chovanec, the rise or fall of prices at their favorite fast food restaurants. Those perceptions often shape how we view inflation (or deflation, for that matter).