Anne Sandager
3 days ago

What is 'Vibeflation' - The Latest Buzzword in Behavioral Economics

Vibeflation is the talk of the town among behavioural economists but what does it actually mean?

A new term is making waves: "vibeflation." The concept refers to a situation where consumers perceive prices to be higher than they actually are, influenced primarily by high interest rates and the overall economic atmosphere. While traditional inflation measures the actual increase in prices of goods and services, vibeflation is all about perception.

High interest rates can have a significant psychological impact on consumers. When borrowing costs go up—affecting mortgages, car loans, and credit card debts—it can make people feel financially squeezed. This heightened sense of economic stress can lead to a perception that everything is more expensive, even if the actual inflation rate is relatively modest.

The media plays a crucial role in shaping these perceptions. With frequent news stories about rising interest rates and potential economic downturns, consumer concerns are amplified. When people are constantly bombarded with information suggesting that the economy is in trouble, they start to believe their money doesn’t stretch as far as it used to.

Consider this scenario: a family decides to cut back on dining out or purchasing non-essential items because they feel prices are too high, even though those prices haven’t changed much. This behavior can further impact the economy, as reduced consumer spending slows down economic growth, potentially creating a self-fulfilling prophecy.

Understanding vibeflation is important for both consumers and policymakers. For consumers, it’s a reminder to look at actual data rather than relying solely on perceptions. For policymakers, it highlights the need to manage not just economic realities but also public sentiment.

So next time you feel the pinch at the grocery store or hesitate to splurge on a dinner out, consider whether vibeflation might be at play.

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