The heterogeneous impact of inflation on households’ balance sheets

Clodomiro Ferreira, José Miguel Leiva, Galo Nuño Barrau, Alvaro Ortiz, Tomasa Rodrigo and Sirenia Vazquez
Additional contact information
Clodomiro Ferreira: Banco de España
José Miguel Leiva: BBVA Research
Tomasa Rodrigo: BBVA Research
Sirenia Vazquez: BBVA Research

No 2403, Working Papers from Banco de España

Abstract: We identify and study analytically three key channels that shape how inflation affects wealth inequality: (i) the traditional wealth (or Fisher) channel through which inflation redistributes from lenders to borrowers; (ii) an income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the prices of different goods affect people differently depending on their consumption baskets. We then quantify these channels during the 2021 inflation surge in Spain using detailed, high-frequency customer-level data from one of the main commercial banks. The unexpected nature of the inflation shock and its perception as temporary in this period in particular closely fit the assumptions behind our theoretical decomposition. Results show that the wealth and income channels are an order of magnitude larger than the consumption channel. Middle-aged individuals were, in net terms, largely unaffected by inflation, while the elderly suffered the most. We find similar results when using representative surveys on households’ wealth, income, and consumption.

Keywords: uneven inflation; net nominal positions; nominal wage rigidities (search for similar items in EconPapers)
JEL-codes: D31 E31 G51 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-eur and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 24/Files/dt2403e.pdf First version, January 2024 (application/pdf)

Related works:
Working Paper: The heterogeneous impact of inflation on households' balance sheets (2023)
Working Paper: The Heterogeneous Impact of Inflation on Households Balance Sheets (2023)
Working Paper: The Heterogeneous Impact of Inflation on Households' Balance Sheets (2022)
Working Paper: The Heterogeneous Impact of Inflation on Households’ Balance Sheets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2403

DOI: 10.53479/35932

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