What is the 'real' rate of inflation?

A superb article by John Kay (Full article here) on the differences between the official rate of inflation, as measured by the CPI (currently 3%) and perceptions of inflation. 'There has always been scepticism about official measures of inflation, but the gap between popular perceptions and the government’s statistics has never been so wide.The popular newspapers have sent intrepid reporters down to the shops to discover the truth, by filling a typical shopping basket. The results are “alarming”, “the most savage increase in living costs for a generation”. The Daily Express found an 11½ per cent increase in prices, the Daily Mail put it at 15 per cent.Yet what the Office for National Statistics does is just what the Express and Mail did, except that the ONS does it much more carefully.

As he points out, the CPI is an average and as such 'disguises a range of experiences' and it is the 'most salient prices' that form our perceptions of inflation. 'The price of petrol is highly salient: not only do people buy petrol regularly, but even when they are not buying it, they routinely pass signs that display the price. We are most observant of the prices of goods we buy regularly and often and of the cost of undifferentiated products, such as petrol or milk, for which price comparisons are easier and likely to stick in our minds.' He points out that perception of inflation is not determined by the ONS but by experieince.