In economics, sometimes it’s not what is actually happening that counts, it’s what you think is happening.

Take inflation. Six week ago we told how, according to the Bank of England, the typical UK consumer thinks inflation is 2.8%, whereas the CPI rate, as determined by the Office of National Statistics, is just 2%.

Maybe it’s because we only notice bad news. Petrol is up, so too are our utility bills and our Council Tax which leads us to forget how much cheaper our LCD TVs are.

It’s a problem for this reason. Expectation can often lead to higher actual inflation. For example, recent government statistics revealed that 616,000 working days were lost to industrial action in the first quarter of this year, compared to 158,000 days throughout the whole of 2005. No wonder markets are fretting over the return of inflation.

© Investment & Business News 2013