Global inflation is finally cooling. Central banks are reporting progress, headline numbers are improving and the urgency that defined the past two years has eased. Yet many households do not feel real relief. House prices remain elevated, travel feels more expensive, school fees continue to rise and everyday purchases do not seem any cheaper.
This gap between what economic data suggests and what households experience is not a contradiction; it is the modern expression of what economists call money illusion – the misalignment between numerical improvements and lived financial reality. Economists have long warned against money illusion, a concept first articulated nearly a century ago to describe the gap between nominal change and real purchasing power.
In today’s context, headline inflation is easing, but the structural and behavioural forces
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