[1] And they notice certain prices, like petrol, more than the multiple prices of other things that add up to the same share of their budget, like pet food. People also tend to notice the big increases in a few prices more than they notice smaller increases, or even declines, in many prices.
It's also the case that the price that people pay isn't necessarily the way the price is recorded in official statistics. This can also lead to misperceptions of the current inflation rate. In particular, if a firm starts selling a higher-quality good at the same price, this is recorded as a fall in prices.