The Coffee Index: Using Everyday Consumer Goods to Dispel Perceived Inflation

Abstract

Perceived Inflation is a term used in behavioral economics to address the public's hypersensitivity to their local and national economies, often believing the inflation rates are higher than they actually are. Mass pattern thinking like this can be dangerous to markets, resulting in panic both in consumer purchasing and policymaking both. With the political stage being in a state of constant flux and turbulence both domestically and abroad, dispelling perceived inflation should be a prime directive of financial education given to the public and policymakers alike. 

This study aims to dispel the idea of perceived inflation existing in the particular local market of Cincinnati, Ohio using one of the most frequently traded goods in the United States as an indicator of actual inflation, coffee. From a sample of 50 of Cincinnati’s independently owned coffee establishments, we collected 2020 & 2024 prices for two particular products, the house coffee, and the house cappuccino, and used regression analysis to show a positive effect on the current prices from those in 2020. We also show the annualized rate of inflation for both products being a suitable indicator of actual inflation in the local market, leading to the result that coffee is a good predictor of local market inflation, as it is priced in accordance with actual, rather than perceived inflation.